Saskatoon Region Economic Diversity Report Economic Diversity: Empirical Calculations and Comparisons In order to analyse the economic diversity of the Saskatoon Region, we first had to answer a few questions: What is economic diversity? In economic literature, economic diversity has been defined in a number of ways. Economic diversity may refer to the presence of many different sectors in an economy. It is also defined as the balanced distribution of employment across a variety of sectors. Based on this, an ideally diversified economy would have an equal level of economic activity across many industries. Thus the greater the concentration of economic activity within a few industries, the less diversified the economy. Why is economic diversity important? A diverse economy is less sensitive to the ups and downs of business cycles affecting any one particular industry. If certain industries are going through a downturn, other unaffected industries will be able to help support overall growth in the economy. This leads to more stability in the overall economy and therefore more stability in employment. How is economic diversity measured? There are many ways of measuring economic diversity, including the following: 1. Analyze employment across sectors. The more balanced employment is across sectors, the more diverse the economy. 2. Calculate the Herfindahl index (H i) through employment analysis. The H i ranges from zero (high diversity) to one (high specialization). 3. Calculate an Economic Diversity Index (EDI) through GDP. Analyze GDP contributions by sectors. The higher the EDI (%), the greater the economic diversity. How diverse is the Saskatoon s economy based on the diversity measurements described above? 1. Analyze employment across sectors: Often employment is chosen to measure diversity as employment numbers do not need to be corrected for inflation across periods. Graph 1: Saskatoon Census Metropolitan Area (CMA)* Employment by Sector (2015Q3) Non-Commercial Services Public Administration and Defence Personal Services Business Services Finance, Insurance and Real Estate Wholesale and Retail Trade Information and Cultural Industries Transportation and Warehousing Manufacturing Construction Primary and Utilities Source: Conference Board of Canada *See Appendix 3 1% 4% 6% 6% 8% 12% 14% 1 24% Saskatoon Economic Diversity Report Page 1
Graph 2: Saskatoon CMA Employment by Sector (August 2015) Public administration Other services Accommodation and food services Information, culture and recreation Health care and social assistance Educational services Business, building and other support services Professional, scientific and technical services Finance, insurance, real estate and leasing Transportation and warehousing Trade Manufacturing Construction Utilities Forestry, fishing, mining, quarrying, oil and gas Agriculture 1% 1% 4% 4% 3% 6% 3% 8% 8% 13% 14% 1 Source: Statistics Canada, Table 282 0130 Employment by sector is tracked by both the Conference Board of Canada (CBoC) (Graph 1; Note: Primary sectors include; Agriculture, Forestry, Fishing, Mining, Oil and Gas while Non-commercial sector includes: Health care, Social Assistance and Education) and Statistic Canada (Graph 2). Although Statistics Canada breakdowns the employment numbers into more sectors, we are including both sets of analysis as the CBoC sectors match their analysis for GDP. Based on graphs 1 and 2, employment in the Saskatoon region is distributed across many sectors. However, from graph 2, 42% of the employment is concentrated within three sectors. Strengthening some of the sectors with low employment may help in distributing employment equally across the sectors and further increase diversity within the Saskatoon region s economy. 2. Calculate the Herfindahl index (H i) through employment analysis: Although the H i is widely used in measuring market concentration in industrial organization (Scherer, 1980) it has also been used as a measure of economic diversity (Tauer, 1992). It indicates the extent to which a local economy is dominated by a few firms. It is expressed as follows: Herfindahl index =, (S i is the share of employment in the ith industry and N is the number of industries) The Herfindahl index varies from zero to one, where a zero measure indicates high diversity, and one indicates low diversity or high specialization. Thus, a decline in the index signifies less concentration in the dominant industry, or greater diversification. Saskatoon Economic Diversity Report Page 2
Graph 3: Herfindahl index 0.1107 0.0905 0.0826 0.0916 0.0855 0.0873 0.0934 0.0888 0.0885 0.0962 0.0946 Saskatoon Regina Winnipeg Calgary Edmonton Hamilton Windsor Halifax Oshawa Niagara Region Victoria Using Appendix 1 (Employment by Sector) data from Statistics Canada s Labour Force Survey (LFS) for August 2015, we calculated the H i for some Canadian CMA s including Saskatoon, Regina, Winnipeg, Calgary, Edmonton, Hamilton, Windsor, Halifax, Oshawa, Niagara region and Victoria. Although population varies among the CMAs, their indices are comparable since employment shares are in percentages. Using the figures in Appendix 2 and the Herfindahl Index formula, we obtain the index for economic diversity across the CMAs From the empirical data we see that Saskatoon is considered diversified with a H i of 0.0905. Given this number is closer to zero than one, it signifies high diversity. Our results support the theory that the Saskatoon economy is diversified. For comparison purposes, the H i for ten other Canadian CMAs have been calculated. According to the data, it appears Saskatoon region economy is more diverse than that of Victoria, Winnipeg, Hamilton, Windsor and St. Catherine s-niagara region but less diverse than Regina, Calgary, Edmonton, Halifax and Oshawa. One important factor contributing to economic diversity is population size. With the exception of Regina, all the cities that are more diverse than Saskatoon have a higher CMA population and that could at least partially explain why they are more diverse. 3. Analyze GDP Across Sectors: The EDI of an economy is based on the following formula: EDI = (S i is the percentage share of GDP by sector i) m Based on GDP sectoral composition, Saskatoon s economy is considered diverse, with an EDI of 87%. A diversity measure of 100% would indicate an ideal level of diversity. With 87% economic diversity measure, Saskatoon s economic diversity is robust. Saskatoon Economic Diversity Report Page 1
Graph 4: Saskatoon CMA GDP by Sector (2015Q3) Non-Commercial Services 11.2% Public Administration and Defence Personal Services Business Services 4. 4. Finance, Insurance and Real Estate 14. Wholesale and Retail Trade 11.7% Information and Cultural Industries 1.7% Transportation and Warehousing 5.6% Manufacturing 8.4% Construction 10% Primary and Utilities 22.9% Source: The Conference Board of Canada Saskatoon Economic Diversity Report Page 4
Appendix 1: Employment by Sector in 000s, Labour Force Survey, Aug 2015 (3-month moving average of employment in 16 aggregate sectors) Industry Saskatoon Regina Winnipeg Calgary Edmonton Hamilton Windsor Halifax Oshawa Niagara region Victoria Total Employment 172.80 138.40 428.10 826.50 767.40 396.90 159.10 227.80 190.6 211.4 180.7 Agriculture 2.50 1.10 2.40 x 9.70 3.8 x 0.5 2.5 3.4 x Forestry, fishing, mining, quarrying, oil and gas 5.40 1.30 0.90 58.60 24.10 x x 2.6 x 1.8 x Utilities 1.00 3.10 5.60 11.50 4.30 4.5 2.1 1.8 4.6 x x Construction 22.00 12.80 29.90 75.00 112.40 28.5 9.8 15.3 13.7 19.5 15.2 Manufacturing 9.10 7.90 42.10 45.70 46.70 52.9 35.5 9.5 17.4 21.4 6.3 Trade 25.40 19.70 63.10 121.50 106.40 61.5 19.2 32.7 31.9 35.4 24.7 Transportation and warehousing Finance, insurance, real estate and leasing Professional, scientific and technical services Business, building and other support services Educational services 8.50 7.70 29.20 56.80 42.10 12.5 5.8 11.3 10.8 7.3 9.3 8.50 11.00 24.80 46.60 35.10 32 11.6 16.8 13.9 7.7 9.2 10.40 8.50 21.70 89.60 62.00 26.4 6.7 21.3 13.4 9.1 14.8 4.70 4.40 15.80 27.60 30.00 23.8 5.7 11.1 8.7 15.4 7.3 14.20 8.60 29.60 39.40 44.60 34.5 12.7 16 11.6 11.2 13.6 Health care and social assistance Information, culture and recreation Accommodation and food services 24.80 16.50 69.00 101.30 89.50 49.9 20.5 34.1 24.8 24.9 29.3 6.50 6.90 18.70 36.50 25.00 13.5 6.9 11.4 7.8 10.3 8 14.30 10.90 30.40 55.60 49.40 22.5 11.1 17.6 9.2 28.4 17.5 Other services 7.80 6.90 20.60 37.90 38.40 14.3 7.8 9.2 6.8 7.8 6.2 Public administration 7.50 11.10 24.20 22.00 47.70 16.3 3.7 16.6 13.1 6.3 17.7 Source: Statistics Canada, LFS, Table 282-013 Saskatoon Economic Diversity Report Page 4
Appendix 2: Employment Share by Sector (percentage shares of employment among the 16 sectors) Industry Saskatoon Regina Winnipeg Calgary Edmonton Hamilton Windsor Halifax Oshawa Niagara region Victoria Total Employment 1 1 1 1 1 1 1 1 1 1 1 Agriculture 0.01 0.01 0.01 X 0.01 0.01 0.00 0.00 0.01 0.02 0.00 Forestry, fishing, mining, quarrying, oil and gas 0.03 0.01 0.00 0.07 0.03 0.00 0 0.01 0.00 0.01 0.00 Utilities 0.01 0.02 0.01 0.01 0.01 0.01 0.01 0.01 0.02 0.00 0.00 Construction 0.13 0.09 0.07 0.09 0.15 0.07 0.06 0.07 0.07 0.09 0.08 Manufacturing 0.05 0.06 0.10 0.06 0.06 0.13 0.22 0.04 0.09 0.10 0.03 Trade 0.15 0.14 0.15 0.15 0.14 0.15 0.12 0.14 0.17 0.17 0.14 Transportation and warehousing Finance, insurance, real estate and leasing Professional, scientific and technical services Business, building and other support services Educational services 0.05 0.06 0.07 0.07 0.05 0.03 0.04 0.05 0.06 0.03 0.05 0.05 0.08 0.06 0.06 0.05 0.08 0.07 0.07 0.07 0.04 0.05 0.06 0.06 0.05 0.11 0.08 0.07 0.04 0.09 0.07 0.04 0.08 0.03 0.03 0.04 0.03 0.04 0.06 0.04 0.05 0.05 0.07 0.04 0.08 0.06 0.07 0.05 0.06 0.09 0.08 0.07 0.06 0.05 0.08 Health care and social assistance Information, culture and recreation Accommodation and food services 0.14 0.12 0.16 0.12 0.12 0.13 0.13 0.15 0.13 0.12 0.16 0.04 0.05 0.04 0.04 0.03 0.03 0.04 0.05 0.04 0.05 0.04 0.08 0.08 0.07 0.07 0.06 0.06 0.07 0.08 0.05 0.13 0.10 Other services 0.05 0.05 0.05 0.05 0.05 0.04 0.05 0.04 0.04 0.04 0.03 Public administration 0.04 0.08 0.06 0.03 0.06 0.04 0.02 0.07 0.07 0.03 0.10 Note: These figures are sector employment as a ratio of total employment in all industries Saskatoon Economic Diversity Report Page 5
Appendix 3: Saskatoon CMA The Saskatoon Census Metropolitan Area covers the following subdivisions: City of Saskatoon Corman Park No.344 Martensville Warman Vanscoy No. 345 Blucher No. 343 Dalmeny Langham Dundurn No. 314 Osler Delisle Dundurn Allan Asquith Colonsay Calvet Vanscoy Whitecap Colonsay No. 342 Bradwell Shields Thode Elstow Meacham Saskatoon Economic Diversity Report Page 6
References Cannor.gc.ca, (2014). Northern Economic Diversification Index. [Online] Available at: http://www.cannor.gc.ca/eng/1388762115125/1388762170542 [Accessed 26 Oct. 2015]. Research and Economic Analysis Division Department of Business, Economic Development and Tourism, State of Hawaii. 2008. Measuring Economic Diversification in Hawaii. Scherer, F.M. 1980. Industrial market structure and economic performance, Second Edition. Boston: Hougton Mifflin Company. Tauer, L.W. 1992. Diversification of production activities across individual states. Journal of Production Agriculture, 5:210-214. Wagner, J.E. 2000. Regional Economic Diversity: Action, Concept, or State of Confusion. The Journal of Regional Analysis and Policy, 30:1-22 Saskatoon Economic Diversity Report Page 6