Calculating the Level of Basic Employment

When the LQ is calculated to be greater than 1.0, it has been determined that some of that industry's employment is Basic. However, it is must be emphasized that a LQ > 1.0 does not mean that all that industry's employment is basic in nature. Recall that it is assumed that any employment "below" an LQ of 1.0 is Non-Basic; those jobs serve local demand. Only those jobs over and above what was expected for the region can be identified as Basic sector jobs.

Because of the assumptions of the Location Quotient approach, a second formula must be applied to determine the number of Basic sector jobs when the LQ is greater than 1.0. This formula is as follows:

Basic Sector Employment	=	Regional Employment Industry I	-	Total Regional Employment	X	National Employment Industry I
		National Employment Industry I		Total National Employment

Examples

For an example of the Location Quotient technique applied to a single industrial sector, visit the King County-WA State LQ Example Page. To see the technique applied with the United States as a comparison region, visit the King County-US LQ Example page.

An Important Caveat: Carefully Choose Your Geographic Units

As with any of the Economic Base Methods, the choice of your data and, more importantly, your comparison area can greatly affect your results. As seen in the LQ example, the use of Washington State may compromise our Industry Code 37 Basic sector employment results. Like King County, it is likely that the entire State of Washington has a greater than average number of Transportation Equipment manufacturing jobs, mainly because of Boeing's existence in the State.

This greater than expected Transportation Manufacturing Employment in the State affects the calculation of the Location Quotient, which then has a direct effect upon the calculated number of Basic sector jobs for this industry. In short, we may have underestimated the number of Basic sector jobs for this industry by using the State of Washington as our reference region; the large number of Transportation Manufacturing jobs in King County does not appear to be that unique when compared to the State as a whole.