by Tim O'Neill
December 2016
As of annual 2015 the Twin Cities Metro Area had 76,305 establishments supplying over 1,675,000 covered jobs. As such, the metro area accounts for 60 percent of the total employment in the state of Minnesota. This information comes from the Minnesota Department of Employment and Economic Development’s (DEED) Quarterly Census of Employment and Wages (QCEW) program. While the sheer size of the metro area comes into focus with just a simple look at total employment, a much greater understanding can be gained by analyzing industry shares and concentration. What are the largest-employing industries in the metro area? What industries make the metro area stand out from Greater Minnesota? Which in-depth sectors of the economy are transforming or emerging? The following will provide answers to these questions, and in turn, provide a greater understanding of what makes the Twin Cities Metro Area distinguishable.
Using DEED’s QCEW tool, you can discover how the Metro Area’s 1,675,000 jobs are distributed among 20 major industry sectors, ranging from Health Care and Social Assistance to Mining. Beyond the 20 major industry sectors, users may also analyze in-depth industry subsectors. For example, Manufacturing is broken down into 21 separate subsectors, ranging from Food Manufacturing to Miscellaneous Manufacturing. Subsectors can be further broken down. Miscellaneous Manufacturing, for example, includes Surgical and Medical Instrument Manufacturing, Sporting and Athletic Goods Manufacturing, and Sign Manufacturing among others. All in all, there are six levels to industry classification, as standardized by the North American Industry Classification System (NAICS).1 For the sake of brevity, this article will not analyze all six levels of industry classification.
At the broadest level of industry classification, the largest-employing industry sector in the metro area is Health Care and Social Assistance with over 250,000 jobs. Manufacturing comes in second with over 168,000 jobs, and Retail Trade comes in third with over 163,000 jobs. Altogether, these three industry sectors account for over one-third (34.8 percent) of the region’s total employment. One step into the metro area’s employment analysis, we can see the importance of three major industry sectors. It’s easy to see why occupations such as registered nurses, home health aides, CNC operators, welders, and retail salespersons are in such high demand.
Zooming in on a higher NAICS level, we get a more complete picture of the metro’s industry employment. The top three industry subsectors now include Educational Services, with nearly 129,000 jobs; Food Services and Drinking Places, with nearly 118,000 jobs; and Professional, Scientific, and Technical Services, with over 112,000 jobs. Altogether, more than one-fifth (21.4 percent) of the metro area’s total jobs are in these three subsectors. Other subsectors at the top include Administrative and Support Services, Ambulatory Health Care Services, Management of Companies, and Public Administration. The top 10 employing industry subsectors account for just over half of the metro area’s total employment (see Table 1).
| Table 1. Top-Employing Industry Sectors in the Twin Cities Metro Area, 2015 | |||
|---|---|---|---|
| Industry Subsectors (3-Digit NAICS) | |||
| Industry Subsector | Number of Jobs | Percent of Total Metro Employment | Percent of Total State Employment |
| Total, All Industries | 1,675,052 | 100.0% | 60.4% |
| Educational Services | 128,634 | 7.7% | 58.0% |
| Food Services and Drinking Places | 117,829 | 7.0% | 61.9% |
| Professional, Scientific, and Technical Services | 112,665 | 6.7% | 77.7% |
| Administrative and Support Services | 92,338 | 5.5% | 71.4% |
| Ambulatory Health Care Services | 78,390 | 4.7% | 55.0% |
| Management of Companies | 69,117 | 4.1% | 88.5% |
| Public Administration | 68,837 | 4.1% | 53.7% |
| Hospitals | 61,940 | 3.7% | 51.3% |
| Source: MN DEED Quarterly Census of Employment and Wages (QCEW) | |||
Management of Companies, with over 69,000 jobs located in the Twin Cities, accounts for 88.5 percent of the state's total employment in that industry. Of the top-employing subsectors, Insurance Carriers and Related Activities; Professional, Scientific, and Technical Services; and Administrative and Support Services also account for a significant number of the state's total jobs in those industries. Other examples of industries with significant employment in the Twin Cities region include Air Transportation (95.2 percent of the state's total employment), Performing Arts, Spectator Sports, and Related Industries (84.6 percent), Real Estate (79.9 percent), Museums, Historical Sites, and Similar Institutions (78.5 percent), and Computer and Electronic Product Manufacturing (78.4 percent).
Location quotients are often used to analyze employment concentrations of specific industries within local economies. If you are a dedicated reader of Employment Review, you have probably come across location quotients before. If you use the Department of Employment and Economic Development's (DEED) Quarterly Census of Employment and Wages (QCEW) tool, you have the appropriate data readily accessible to determine location quotients at the state, regional, county, and city levels. Luckily, once the employment data are collected, actually performing the calculations is straight forward. Here is the formula:
Essentially, a location quotient for a particular industry is a ratio that compares the percentage of employment in that industry in a local economy to the percentage that same industry constitutes in a reference economy, typically the national economy.
Location quotient analysis indicates which industries have a comparatively larger or smaller presence in the local economy. A location quotient of 1.0 means that the share of employment in a particular industry in a local economy is exactly the same as the share of employment in the same industry nationally. If a location quotient is greater than one, the local share of employment in a particular industry exceeds the national share of employment in the same industry. Location quotients greater than 1.2 are generally considered to be significant and indicate relatively high production of a particular good or service.2
Combining employment levels, location quotients, and recent growth, metro area industries can be placed into four different categories: star, mature, emerging, and transforming industries:
"Star" industries are those with high concentrations of employment in the metro area that witnessed recent employment growth. These are specialized industries within the region, which are becoming even more specialized (see Table 2).
| Table 2. Star Industries in the Twin Cities | |||
|---|---|---|---|
| Industry | Location Quotient | Q2 2016 Employment | Q2 2014 – Q2 2016 Employment Change |
| Computer and Electronic Product Manufacturing | 2.7 | 35,954 | 2.1% |
| Management of Companies | 2.5 | 69,428 | 0.2% |
| Miscellaneous Manufacturing | 2.4 | 17,777 | 3.4% |
| Social Assistance | 1.4 | 62,512 | 10.6% |
| Fabricated Metal Product Manufacturing | 1.4 | 24,456 | 1.5% |
| Machinery Manufacturing | 1.2 | 17,163 | 1.2% |
| Nursing and Residential Care Facilities | 1.2 | 51,232 | 1.1% |
| Merchant Wholesalers, Durable Goods | 1.2 | 43,884 | 2.8% |
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Note: Location Quotients are based on annual 2015 private sector employment data. All Industries listed account for at least 1 percent of total Metro Area employment. |
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"Mature" industries are those with high concentrations of employment in the metro area that experienced recent employment losses. These industries are currently specialized, but are at risk of becoming less so (see Table 3).
| Table 3. Mature Industries in the Twin Cities | |||
|---|---|---|---|
| Industry | Location Quotient | Q2 2016 Employment | Q2 2014 – Q2 2016 Employment Change |
| Printing and Related Support Activities | 2.6 | 14,312 | -3.5% |
| Insurance Carriers and Related Activities | 1.8 | 42,857 | -9.2% |
| Publishing Industries (except Internet) | 1.7 | 14,182 | -10.8% |
| Real Estate | 1.3 | 20,479 | -18.8% |
| Wholesale Electronic Markets, Agents, and Brokers | 1.2 | 13,120 | -4.0% |
| Religious, Grant-making, and Civic Organizations | 1.2 | 19,901 | -1.7% |
|
Note: Location Quotients are based on annual 2015 private sector employment data All Industries listed account for at least 1 percent of total Metro Area employment. |
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"Emerging" industries have low concentrations of employment in the metro area but have witnessed recent employment growth. These industries are poised to become more specialized in the region (see Table 4).
| Table 4. Emerging Industries in the Twin Cities | |||
|---|---|---|---|
| Industry | Location Quotient | Q2 2016 Employment | Q2 2014 – Q2 2016 Employment Change |
| Professional, Scientific, and Technical Services | 1.0 | 123,899 | 13.4% |
| Educational Services | 1.0 | 133,422 | 1.0% |
| Amusement, Gambling, and Recreation Industries | 1.0 | 21,422 | 6.8% |
| Hospitals | 0.9 | 63,997 | 3.1% |
| Ambulatory Health Care Services | 0.9 | 80,567 | 6.9% |
| Administrative and Support Services | 0.9 | 91,577 | 1.5% |
| Clothing and Clothing Accessories Stores | 0.9 | 14,706 | 9.5% |
| Food Services and Drinking Places | 0.9 | 122,429 | 4.2% |
| Specialty Trade Contractors | 0.9 | 45,579 | 14.3% |
| Construction of Buildings | 0.8 | 14,510 | 6.9% |
| Motor Vehicle and Parts Dealers | 0.7 | 17,953 | 6.3% |
| Food and Beverage Stores | 0.7 | 27,855 | 7.8% |
|
Note: Location Quotients are based on annual 2015 private sector employment data. All Industries listed account for at least 1 percent of total Metro Area employment. |
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"Transforming" industries have low concentrations of employment in the metro area and have experienced recent employment losses. These industries would require significant investments to become more specialized in the region. New technologies and innovations may also be impacting employment in these industries (see Table 5).
| Table 5. Transforming Industries in the Twin Cities | |||
|---|---|---|---|
| Industry | Location Quotient | Q2 2016 Employment | Q2 2014 – Q2 2016 Employment Change |
| Paper Manufacturing | 1.0 | 4,553 | -3.2% |
| Miscellaneous Store Retailers | 1.0 | 10,514 | -4.7% |
| Electrical Equipment and Appliance Manufacturing | 1.0 | 4,407 | -4.6% |
| Merchant Wholesalers, Nondurable Goods | 0.9 | 22,937 | -1.1% |
| General Merchandise Stores | 0.9 | 33,115 | -0.6% |
| Telecommunications | 0.9 | 8,206 | -13.0% |
| Primary Metal Manufacturing | 0.7 | 3,378 | -3.2% |
| Food Manufacturing | 0.6 | 11,067 | -5.2% |
| Accommodation | 0.5 | 15,498 | -2.0% |
| Motion Picture and Sound Recording Industries | 0.5 | 2,274 | -4.6% |
| Note: Location Quotients are based on annual 2015 private sector employment data. | |||
While this type of analysis only looks at a snapshot in time, it reveals both the importance and the growth of key industries in the Twin Cities region. Check back with Employment Review often to see how the Twin Cities' distinguishing industries change with time.
1 More information on the NAICS codes can be found here: www.census.gov/eos/www/naics/
2 McLean, Mary L., and Menneth P Voytek. Understanding Your Economy: Using Analysis to Guide Local Strategic Planning. Chicago, American Planning Association, 1992, pp. 61-66.
