In this blog series, we’ve talked a lot about location quotients, using them to help identify what’s really driving Maryland’s economy. Previous posts have looked at QCEW data at the 4-digit NAICS code level. However, focusing on one NAICS code at a time can cause us to miss patterns from interrelated industries. For example, the financial services industry could consist of businesses in several 4-digit NAICS codes, including:

  • 5221 (depository credit intermediation),
  • 5222 (nondepository credit intermediation),
  • 5231 (securities and commodity), and
  • 5259 (investment pools and funds).

To get a better picture of what’s happening in the regional economies, it’s important to look at clusters of related industries. The US Cluster Mapping Project—a partnership between the Harvard Business School, US Department of Commerce, and the US Economic development Administration—maps NAICS codes to 67 different industry clusters and 316 subclusters. Industries are grouped together based on how often they collocate in the same county, linkages from the BEA’s input-output tables, and how related occupations in those industries are.

To look at how these clusters drive Maryland’s economy, the Regional Economic Studies Institute at Towson University analyzed data for Baltimore County. Unlike previous posts, such as when we explored Frederick County, this analysis uses County Business Patterns (CBP) data from the US Census. CBP data is useful for looking at employment when employment data is suppressed. Data suppression is common to keep business-level information private in industries with very few businesses. This is very common when looking at county level data, and more so when analyzing 6-digit NAICS code data needed to run a cluster analysis.

A Cluster Analysis of Baltimore City

As of 2015, when data was most recently available, the cluster with the highest location quotient in Baltimore City was Education and Knowledge Creation. This industry cluster employed over 33,000 people in 2015 and had a location quotient of 6.1, indicating employment is six times higher than expected. This should come as no surprise to anyone familiar with Baltimore City, and the institutions of the Johns Hopkins University, Loyola, University of Baltimore, Maryland Institute College of Art, and several other great schools.

Colleges and universities help drive the local economy in several ways. For one, they serve as “anchor institutions.” These large employment centers attract a variety of businesses, such as restaurants and bookstores, to the area to cater to the needs of faculty, staff, and students. Employees at these anchor institutions often spend their money in Baltimore City, even outside of the immediate area around the schools, further supporting a strong local economy. Additionally, these colleges and universities produce thousands of college graduates each year, and many businesses locate in Baltimore specifically to take advantage of the city’s well-educated workforce.

Another cluster driving Baltimore City’s economy is the Financial Services cluster, which employs over 11,000 people and has a location quotient of 2.5. The Financial Services cluster includes employment at Legg Mason and T. Rowe Price, as well as at smaller companies like the city’s many credit unions. Other important clusters to the county include Water Transportation (it’s location quotient of 4.7 is driven mostly by employment at Baltimore City’s bustling port) and Local Health Services (employing 68,000 people it is by far the largest industry cluster in the county).

When it comes to understanding the regional economy, it’s important to not get lost examining singular data points and individual NAICS codes. Exploring data for patterns and trends can lead to greater insight into your county or city. If you want further insight into how employment in your area is changing and to learn what’s behind those changes, contact me to learn what we can do to help.