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Employment Projections Shift Share & Constant Share Approaches URBPL 5/6020 Pam Perlich

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Regional Economic Projections If the region is so different from the nation, independent projections may be made. A more common approach is to tie the regional economic projections to national projections. –Constant Share Approach –Shift Share Approach

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Constant Share Approach Employment in industry i grows at the same rate for the region and for the nation. The region’s employment in industry i maintains the same share of the nation’s employment in industry i. e i / E i remains constant over time –E i is national employment in industry i –e i is regional employment in industry i

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National Projections Until recently, the Bureau of Economic Analysis projected employment and income by industry for the nation. It collaborated with Census, the Dept. of Agriculture, Bureau of Labor Statistics, and others. This program has been discontinued. We now must go with private vendors.

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Shift Share Approach Modifies constant share by adding a shift term. Tie the growth rate projections for each industry to that of the national projections plus or minus a differential.

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Shift Share Projection e i t+1 = e i t ( 1 + R i + s i ) e i t+1 : projected employment in local area industry i in time t + 1 e i t : employment in local industry i at time t R i : Projected growth rate in national employment in industry i from time t to time t+1 s i : local shift - growth rate differential

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Shift Share Projection e i t+1 = e i t ( 1 + R i + s i ) s i : local shift - growth rate differential s i > 0 => local industry is projected to grow faster than the nation s i local industry is projected to grow slower than the nation s i = 0 => constant share approach s i is based on history or forecasted structural changes

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Example for Industry A Projected ObservedShift ShareConstant Share Nation5%9% State8%12%9% Differential is 3%=8% - 5% Differential is 3%=12% - 9% Differential is 0%=9% - 9% Constant Shift Term is 3%

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