Thursday, January 23, 2014

Utah Has Fourth Most Diverse Economy in the Nation

Eric Martinson, Economist

Utah’s recovery from the Great Recession in 2008 has been one of the strongest in the nation. Among a few different reasons behind the speedy recovery is that we have an economy that mirrors the nation in its mixture of industries. In fact, Utah’s economy has been consistently ranked as one of the nation’s most diverse. With manufacturing in the northern Wasatch front, a varied services sector in Salt Lake County, the tech hub in Provo-Orem, mining/oil and gas in the Eastern region, and leisure and hospitality in Summit County and in south-southeastern Utah, it is not hard to see the diversity in Utah’s economy. But how can one make a quantitative assessment about the extent to which a state’s economy is more diverse than another’s? One answer is the Hachman Index (see here for more).

The Hachman Index is a tool that simply divides the ratio of industry employment in a state by the same ratio at the national level. Then each state industry comparison is adjusted for its relative employment size within Utah (called influence or weighting), and the cumulative package produces the Hachman Index. By holding the state’s economic diversity relative to the nation’s, this index allows us to evaluate which states’ economies mirror the nation’s industrial structure the most. Based on this scale, Utah’s labor economy is the fourth-most diverse. With an index number of 0.97, Utah has an industry structure that mirrors 97 percent that of the United States’. Such a varied labor economy helps to spread the risk and fallout of industries who may suffer shocks from time to time.


The accompanying table shows states ranked in terms of their 2012 Hachman Index along with the states’ 2011-12 year-over-year employment change. What is interesting to note is that Utah and Arizona are the only two states in the top ten of the Hachman Index rank whose year-over employment change over the same period is also in the top ten highest employment gains. Other states whose recent employment growth is highest are those which have seen a boost in energy-production employment – such as North Dakota, Texas, and Colorado – economies whose labor markets are less diverse than that of Utah’s. Heaven forbid, should the energy-production sector suffer a major setback, drop in industry employment may adversely affect overall employment growth within those states where the majority of employment growth has been driven by the recent oil and gas boom.

Not only has Utah been recovering rapidly from the Great Recession, its highly diverse industrial makeup has qualified its recovery as robust, given that recent employment growth in Utah has been seen in virtually every sector. This positive feature of Utah’s economy will only help Utah’s continued recovery and its long-term employment growth.

Industry Diversity and 2011-12 Employment Change
Economic Diversity Ranking
State
2012 Hachman Index
Annual 2011-12 Change in Employment
1
Missouri
0.984
0.9%
2
North Carolina
0.976
1.8%
3
Illinois
0.975
1.3%
4
Utah
0.975
3.4%
5
Arizona
0.972
2.3%
6
Georgia
0.969
1.3%
7
Kansas
0.967
1.3%
8
Maine
0.966
0.6%
9
Nebraska
0.965
2.1%
10
Minnesota
0.958
1.6%
11
New Jersey
0.958
0.9%
12
Ohio
0.958
1.6%
13
Pennsylvania
0.958
0.8%
14
Michigan
0.957
2.1%
15
Tennessee
0.956
2.0%
16
Colorado
0.955
2.4%
17
New Hampshire
0.952
1.1%
18
Kentucky
0.951
1.5%
19
South Carolina
0.946
1.7%
20
Oregon
0.945
1.6%
21
Alabama
0.944
0.8%
22
Florida
0.944
2.0%
23
Vermont
0.942
1.4%
24
Connecticut
0.941
1.0%
25
California
0.936
2.7%
26
South Dakota
0.935
1.7%
27
New York
0.931
1.4%
28
Massachusetts
0.931
1.6%
29
Iowa
0.931
1.6%
30
Rhode Island
0.928
0.5%
31
Arkansas
0.927
0.6%
32
Texas
0.926
2.9%
33
Mississippi
0.915
0.9%
34
Delaware
0.910
0.7%
35
Virginia
0.909
1.1%
36
Wisconsin
0.908
1.1%
37
Washington
0.907
1.8%
38
Indiana
0.907
2.1%
39
Idaho
0.904
1.1%
40
Montana
0.897
1.8%
41
Louisiana
0.892
1.2%
42
Maryland
0.884
1.3%
43
Puerto Rico
0.837
1.5%
44
New Mexico
0.831
0.5%
45
Oklahoma
0.829
2.2%
46
Hawaii
0.827
1.9%
47
West Virginia
0.746
1.2%
48
Virgin Islands
0.741
-7.5%
49
Nevada
0.702
1.5%
50
Alaska
0.668
1.6%
51
North Dakota
0.643
8.5%
52
Wyoming
0.380
1.4%
53
District of Columbia
0.199
1.1%




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