More Eggs in Fewer Baskets

By Kyle Uphoff
September 2010

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Minnesota has a reputation for a diverse industry base, but the state’s jobs are increasingly being found in a concentration of sectors.

Industrial diversity is generally considered to be a desirable trait in an economy. A wide mix of industries provides a variety of occupational opportunities. It softens the blow of recession because downturns do not typically impact all industries to the same degree. A diverse industry base might also provide innovation opportunities through the sharing of ideas.

Minnesota is generally considered to have a diverse industry base with strengths in natural resources (agriculture and mining), manufacturing (medical devices, food, building products and machinery) and services (health care and publishing), but some industries seem to be taking on a higher share of total employment.

Increased Concentration

Industry and wage concentration has been steadily increasing over the last 10 years. In 2000, 22 percent of the state’s total employment was concentrated in 10 specific industries (six-digit NAICS). Similarly, 21 percent of total wages was concentrated in 10 specific industries that were distinct from the top 10 employing industries. Those levels of concentration in the top 10 industries have steadily increased over time and now represent 26 percent of total employment and 27 percent of total wages (see Figure 1). While the increase is relatively small, the change is continuous, showing increased concentration every year since 2000.

Although Minnesota is considered to have a relatively diverse economy, levels of concentration exceed that of the nation. Twenty-one percent of U.S. employment was in 10 industries in 2001. That concentration had increased to 23 percent by 2009. Seventeen percent of wages was concentrated in 10 industries in 2001, increasing to 21 percent in 2009.

Not only are overall levels of concentration greater in Minnesota than the nation as a whole, but concentration is increasing more in the state over time. Minnesota employment concentration grew 4.7 percent between 2001 and 2009 compared with only 1.8 points nationally. Wage concentration grew 5.3 percent in Minnesota, while growing only 3.4 percent in the United States.

Prior to 2004, employment concentration in 10 industries exceeded that of wages. By 2004, however, wage concentration in 10 industries exceeded employment concentration. That same trend has not taken place nationally, though the gap is closing.

Shifting Industry Makeup

Increased employment concentration has occurred in part because the top 10 industries are growing faster than the rest of the economy. Between 2000 and 2009, the makeup of the top 10 employing industries remained mostly unchanged (see Table 1). Nursing care facilities moved up the list at the expense of temporary help services, which suffered large employment losses during the recession. Nationally, the largest employer list mirrors that of Minnesota, with the exception that hotels and motels and warehouse clubs make up a greater share of U.S. employment than commercial banking and discount department stores.

The industries with the largest concentration of wages have changed more dramatically over the years. After two recessions and a major airline merger (Northwest Airlines and Delta), passenger airline transportation has dropped from the list. Computer systems design dropped from the list after the dot-com crash of 2001, while temporary employment services has only dropped off with the most recent recession and might return in coming years. These industries have been replaced by health insurance carriers, medical device manufacturers and full-service restaurants.

Nationally, the largest wage-paying industries are similar to Minnesota but include engineering services, temporary help services and customized computer programming services. Insurance carriers, medical device manufacturers and nursing care facilities are less prominent nationally.

Regional Diversity

Each county in Minnesota has its own industrial makeup and its own level of industry concentration. Figure 2 maps the concentration of employment in the top 10 industries by county. For instance, 24 percent of total employment in Dakota County is in 10 industries, while Roseau County has 77 percent of its employment concentrated in 10 industries.

It is perhaps not surprising that counties with the lowest concentration of employment (counties with the greatest diversity of jobs) are part of the Minneapolis-St. Paul, St. Cloud and Mankato metropolitan areas. There seems to be an arc of industrial diversity that follows Interstate 94 northwest from the Twin Cities.

St. Louis County (including Duluth and part of the Iron Range) is in the second tier of counties with the most diverse industry bases. Olmsted County (part of the Rochester metropolitan area) has a fairly low level of industry diversity, which is probably driven by strong concentration of employment in two industries – health care and computer manufacturing.

Dakota County has 16 industries that employ 1 percent or more of total county employment.  The list itself is diverse and includes many of the leisure and hospitality, health care, corporate management and retail industries that one sees in Table 1. But it also includes high employment concentrations in publishing, insurance, computer systems design, electronic instrument manufacturing, transportation (couriers and trucking) and social services. Other counties in the same bracket as Dakota County show similar trends with their own specific industries of specialization.

On the other end of spectrum are counties such as Roseau, Lake of the Woods, Pennington, Cook and Jackson. These are similar to Dakota County in that they have anywhere from 13 to 19 industries with more than 1 percent of total employment. However, while Dakota County has no single industry with more than 5 percent of total employment, these counties have a single industry (often a single firm) that has anywhere from 10 to 40 percent of total employment. These counties are different in their own ways, though most of them have a single large manufacturing industry (such as transportation, farm machinery, heating equipment or windows) and maybe a handful of much smaller ones.

Most of them have significant industries built up around natural resources such as tourism (hotels, gift shops, campgrounds), crop and animal agriculture (production and wholesale) or forestry. The bulk of other employment exists in those industries that support the needs of the population, such as health care, supermarkets and gasoline stations. High value-added services such as information, professional services and finance tend to be lacking.

Does Industry Concentration Matter?

Figure 3 shows the change in employment concentration by county between 2000 and 2009.  There are few trends that immediately stand out. Dark blue and dark gray counties have witnessed an increase in employment concentration—more jobs in 10 industries. These make up 49 of 87 counties (56 percent) and encompass some of the very counties that have the highest levels of industry diversity as shown in Figure 2. The counties are distributed throughout the state, including metropolitan (such as Ramsey and Blue Earth) as well as more rural counties. Counties with decreasing levels of employment concentration include some counties in north central and southern Minnesota.

On the whole, counties with increased levels of employment concentration witnessed a loss of jobs of 2 percent between 2000 and 2009, while counties with decreased concentration experienced a loss of 1.3 percent. Meanwhile, the overall Minnesota economy lost 1.5 percent of its jobs during the same time period. Still, higher levels of employment concentration locally do not always necessarily mean that regional economies don’t create jobs.

Figure 4 shows employment changes between 2000 and 2009 for groupings of counties that have gone through various levels of industry concentration. Counties that witnessed a decrease of 5 percent or more in the percent of employment in 10 industries witnessed an overall job growth of 1.3 percent compared with an overall loss of 1.5 percent for the state as a whole. Meanwhile, counties that had an increase in employment concentration of 5 percent or more witnessed overall growth of 0.4 percent. While this is obviously less that those counties witnessing less concentration over time, it is still better than the overall loss at the state level.

The middle bars in Figure 4 show a 2.8 percent employment loss for a group of counties witnessing less employment concentration (0 to 5 percent decrease) in the top 10 industries and a smaller loss (2 percent) for counties witnessing higher levels of concentration (0 to 5 percent increase). 

Changes in employment concentration can happen for different reasons, and counties show different patterns. Counties with increased employment concentration often lose industries with 1 percent or more of total employment. Between 2000 and 2009, 13 industries in Yellow Medicine County dropped below 1 percent of total employment and were replaced by only four new industries that grew above 1 percent. In the same time, one industry (hospitals) nearly doubled in percent of total employment. Similar trends occur for Jackson and Wadena counties. In Murray and Stevens counties, a few smaller industries increased their share while other industries shrank.

Counties with less employment concentration in 10 industries often witness an increase in the number of industries with more than 1 percent of total employment. In Mille Lacs County, six industries dropped below 1 percent of total employment between 2000 and 2009, but nine industries took their place. Such increased diversity is not necessarily a good thing. A large employer may lose employment. Indeed, Mahnomen, Redwood, Mille Lacs and Pine counties all witnessed overall employment losses. The one common denominator among counties with increased or decreased employment concentration is a fairly high level of dynamism. Most counties at the extremes have dramatic changes in their top-employing industries.

The Future

Due to data limitations, one cannot structure DEED’s employment forecasts to show the same trends as above. DEED’s employment projections typically cover a broad industry scope (two- and three-digit NAICS), and it is not possible to look at the highly specific industries (six-digit NAICS) noted above. 

Projections, however, do allow for a broad level of analysis. In 2009, 44.2 percent of the state’s employment was in 10 major (three-digit NAICS) industries. By 2019, this concentration is projected to stand at 47.2 percent. These industries include health care (hospitals, ambulatory health care, and nursing and residential care), education, food and drinking places, professional and technical services, administrative services (temporary help services), social services, corporate headquarters and membership organizations.

It is generally believed that having too much employment concentrated in a few industries creates boom and bust scenarios. This also depends upon the nature of the industry. Many regions with a high concentration of employment in manufacturing have certainly lost jobs.

On the other hand, employment in Olmsted County—with some of the highest levels of employment concentration— grew 7 percent between 2000 and 2009 in part because of its strengths in health care and information technology. Part of the economic health of the region will depend on how its predominant industries face future challenges, including the passing of the baby boom generation, increased investment in health care and information technology in other nations, and globalization. 

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