Clustering occupations.

Author:Slaper, Timothy F.
 
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Which is more important: what we do or what we make?

Which does one hear more about: skills gaps or industry gaps? Know this, if one were to type in "industry gap" in Google, one of the top matches is "industry skills gap." Given that occupations embody knowledge and skills, it may well be that "what we do" is more important.

A region's occupational mix may be at least as important as a region's industrial mix in driving economic performance. Indeed, several years ago, this publication showed that the reason Indiana lagged the nation in terms of personal income was that the state's occupation mix did not reflect the nation's mix. (1) Many occupations were over-represented in the Hoosier state while others were underrepresented.

Many economic development practitioners (EDPs), as well as policymakers and analysts, are familiar with industry constructs and analysis (the Standard Industrial Code was around from the late 1930s until being replaced with the North American Industrial Classification System in the mid-1990s), but are not as familiar with occupational constructs and analysis. Although it was developed in the late 1970s, the Standard Occupational Classification (SOC) system did not really get the attention it deserved until the 1990s.

Why consider occupation clusters? Isn't the full list of 923 detailed occupations better for an EDP to understand a region? Why cluster occupations when there are established broader aggregates of 23 occupation groups, or families, as defined by the Bureau of Labor Statistics (BLS) and O* *NET? Detailed analysis does require the full set of occupations, but distilling 923 occupations into 34 clusters--as presented below--allows one to view a region's occupation profile, or human capital, in one view. Moreover, occupation clusters are superior to job families because occupation clusters are in closer alignment with the types of industries those occupations inhabit.

The purpose of creating and using occupation clusters as well as industry clusters is to develop an additional dimension for analyzing and describing a regional economy.

This methodology is different from the methods commonly used to categorize industry clusters. Identification of industry clusters involves tracing value-chain relationships between industries and businesses (that is, businesses that buy and sell things to each other that they need in order to process and produce products). The occupational mix of a region is based on the BLS occupational employment survey (OES) that is used to determine industry staffing patterns. Staffing patterns are a list of the occupations employed within a particular industry.

One would not be far off the mark to say that the regional presence of industries largely indicates the region's occupational mix. And the reverse is largely true as well. A region's occupational mix largely implies the type of industries in greatest concentration in the region. That said, there may be cases for which this does not hold. A generic drug manufacturer may have a materially different staffing pattern than a boutique pharmaceutical manufacturer. The Indiana Business Research Center (IBRC) estimates county-specific occupation counts using staffing patterns and adjusts the occupation estimates using region-specific OES results published by BLS. (2)

The IBRC recently performed occupational cluster analysis to continue a research effort to develop a web-based database and analytical framework that would enable EDPs, policymakers and researchers to better understand their region or state. Occupation clusters have the advantage of compressing important information about the detailed occupation definitions (which total 923 in the SOC vintage used here) to make analysis more manageable. The goal is to help users:

* Understand their local workforce and educational situation within the broader regional economic development context

* Understand the associated knowledge and skills that will help local and regional stakeholders to bridge the gap between workforce and economic development when constructing a regional economic development strategy

* Diagnose how well-positioned the region and its communities are to participate effectively in a knowledge-based economy

* Determine a region's strengths and weakness in terms of knowledge and skills

Analyzing industry concentration, we posit, overshadows occupation concentration for EDPs and policymakers. Why this is the case when occupations embody the knowledge, skills, and training of the individuals who work for businesses and industries is anybody's guess. In contrast to simply using educational attainment to measure a region's human capital...

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