Exploring Metro Atlanta’s High-Productivity Information Sector
By Tom Cunningham, chief economist, Metro Atlanta Chamber
As part of a project characterizing Atlanta’s economy, I spent some time comparing the metro region to the rest of the nation. I did that by looking at relative concentrations in the local economy compared to that of the nation. In general, Atlanta’s economy is a good reflection of the nation: the relative share of the metro’s economy devoted to a particular sector or industry is a decent match with the U.S. That is, the share of our economy coming from utilities, for example, is about the same as the national average. This is true for the bulk of our local economy.
There are a couple of immediately obvious exceptions with the generalization above. We have a relative concentration in logistic-related sectors – wholesale trade and transportation. That dates back to the reason Atlanta was founded. An early 19th century survey showed that what is now Atlanta was a geographically superior place to put a rail hub. In the 20th century, UPS and Delta Air Lines headquarters certainly added to that employment concentration. Another sector – “Information” – is a broad category that includes various technology-related firms, some data analytics activities, as well as video production (film, TV, games, etc.), traditional media and some telecommunication and internet firms. Atlanta has a large and rapidly growing tech sector, and there is also a film/TV/video production nexus here, so this concentration is not very surprising.
There are many possible measures of relative concentration, but two common approaches are to look at the relative employment of inputs, usually labor, and the relative size of output.
A measure of the relative intensity of a sector’s labor employment is the sector’s “Location Quotient.” LQ as a measurement reveals the local share of labor employed in a sector compared to the sector at a national scale – an LQ of 1 is the baseline, meaning the share of local employment for a sector matches that of the nation. Conversely, an LQ of 0.5 means that local employment is half as intense as the nation and so on. It is important to note that LQ does not reveal anything about the size of the sector itself, but it remains a useful tool in determining the relative importance of a sector. For the purposes of this piece, the Atlanta Information sector LQ will reveal how the employment here stacks up to employment around the nation.
One arrives at output intensity by measuring the relative share of income generated locally versus nationally. The resulting ratios can be interpreted in a similar manner as described above – an output intensity of 1 means that the local “GDP” coming from the sector mirrors the national share of “GDP” from that same sector. Output intensity, as used in this piece, will reveal the generated income for the Information sector here in metro Atlanta compared to the nation’s generated income in the sector.
All measures of concentration should produce about the same result, and in general they do. Sectors with higher ratios of labor employment also have higher ratios of output generated. That is quite intuitive.
The Information sector in Atlanta stands out, however, in having a very different output intensity from its labor employment intensity. That sector’s labor LQ is 1.36. That is, the share of workers in the Atlanta economy that are employed by the Information sector is 36 percent greater than the nation as a whole. This is notable and in line with my understanding of Atlanta is an active place for both tech and film employment. (See footnote 1)
If we look at the Information sector’s importance as measured by relative output shares, however, the ratio is 1.60. As measured by output generated, Information in Atlanta is 60 percent more important than in the nation generally.
This disparity in the measures of the relative size of the sector suggests that there is something fundamentally different about Atlanta’s Information sector compared to that of the nation. If the fundamentals of the Atlanta sector were the same as that of the nation, then having a 36 percent greater employment intensity should generate a relative output intensity that is also around 36 percent above the national average – but that isn’t the case. We’re getting 60 percent more relative output. Metro Atlanta seems to be getting a lot more output than the labor input would suggest. Atlanta’s Information sector workers seem to be unusually productive. What is contributing to this finding? (See footnote 2)
One explanation is human capital. Georgia Tech and Emory are world-leading research institutes producing a disproportionate share of new human capital. Atlanta as a whole has over a quarter-million students enrolled in higher education. A relatively talent-rich environment may help explain the apparent high productivity of workers in Atlanta’s Information sector.
Another possibility is that the firms located in Atlanta are notably different than the national average, and that those located here are particularly productive. A recent note from the Bureau of Labor Statistics shows that, for the nation overall, high-tech workers have been accounting for about 10 percent of the nation’s employment post-recession and about 18 percent of the nation’s output. While the note is not directly comparable to the ratios discussed in this paper (the Bureau’s statistics are for the nation as a whole and do not address the local/national ration), there is considerable overlap – tech firms have higher worker productivity. It very well may be that the Information firms in Atlanta are an extreme example of this generally higher rate of worker productivity.
As an aside on the methodology used here, the same approach suggests that workers in our Transportation and Wholesale sectors are about 5 percent more productive than similar workers in the rest of the nation. This seems appealingly plausible given the geographic advantage in distribution Atlanta has enjoyed from its inception.
The bottom line is that workers in Atlanta’s Information sector are currently about 17 percent more productive than workers in that sector in the rest of the nation. Pinning down precisely why that is the case is not easy. A policy of simply blindly expanding employment within this sector would probably result in lower marginal productivity. However, the fact remains that the organic growth in this sector has served the region very well. Continuing along the current growth path seems like a particularly advantageous strategy.
- The Information sector is not broken down in a way that allows an easy separation of the tech firms from the video firms. The Georgia Office of Film and Entertainment, however, provides some expenditure data for the video production industry in the state. While not necessarily directly conformable to the GDP accounts, it provides a back-of-the-envelope approximately separate the firms. When that is done, the numbers for both the video and the tech segments do not change sufficiently to alter the underlying narrative.
- The easiest way to think about this is with a generic production function, common in economics. In that model output, denoted by Y, is a function, f(.), of inputs: capital, denoted K and Labor, denoted L. That is, Y=f(K,L). If we think of all these measures, Y, K and L, as ratios of the local economy to the national economy, we know that Y is 1.6 and L is 1.36. There must be something going on either with K, or with the production function itself f(.) that can explain why the output share is more than 17 percent greater than the labor input share. There may be a lot more capital (K) residing in Atlanta, or the firms themselves [f(.)] may be different.