In the summer issue of Local Insights we explored local area industry diversity using the Hachman Index. As
stated in the article, many economists believe that economic diversification
promotes stability in local markets. The article also touches on the difficulty
of identifying an exact index value that denotes an appropriately diverse
economy. One way to examine Hachman Index values is described below:
“It is difficult to determine
exactly what index value constitutes a highly diversified region when there are
large differences in total employment [among the regions]. However, if a county’s Hachman Index ranks
considerably higher than its total employment count – relative to the other
counties in the state – that is an indication that the county is relatively
diverse. Using this method reveals that Morgan County had the eighteenth
highest Hachman Index and the 25th largest employment base in the state, making
it more diverse than counties of similar size. Both Davis and Weber’s index
values ranked similarly to their total employment ranks of third and fourth,
respectively.”
This simple comparative method
highlights the correlation between the size of the workforce in a given county
and the industrial diversity in that area. In general, counties with larger
populations do not rely on one or two key industries for employment. On the
other hand, small communities in less populous counties often exist because
their region has (or had) a comparative advantage in a single industry. The
relationship between employment count and economic diversity allows us to
identify counties that are more or less diverse[1]
than expected using the matching exercise in the chart to the right.
[1]
Counties where the Hachman Index ranks more than two spots higher or lower than
the Total Employment ranking are identified as “More Diverse” or “Less
Diverse”, respectively.
