Diversifying our Portfolio
How diverse is our regional economy, and how has that changed?
Most financial experts will advise you of the prudence of developing some degree of diversification in your investment portfolio. Doing so spreads your risk around and insulates you from the poor performance of an individual company or a downturn in a particular industry. It’s a simple calculus: the higher the concentration of your assets in a certain stock or industry, the greater your long-term vulnerability.
Metropolitan economies, it is widely regarded, work much the same way. While diversification is not the only indicator or driver of economic health, it does make cities much less susceptible to shocks when industries slump or consumer demands or labor trends change drastically. So how does the New Orleans area fare in economic diversification?
Obviously this is a large and complex question, and there are many different credible ways to answer it. I analyzed employment data from the U.S. Census Bureau to compare the percentage of New Orleans area workers employed in 20 different industries. I then compared those percentages to three different cities ranked by Area Development Magazine as among the top 20 most economically vibrant metropolitan areas in the country — Denver, Nashville and Austin.
At first glance, the results are not especially striking. The top five industries in each metro area (as they are in many regions) are fairly consistent: healthcare and social asssistance; retail trade; educational services; accommodation and food services; and professional, scientific, and technical services, are for the most part the largest employers. And the degree to which these top five industries comprise the overall employment pictures in each of the metro areas is fairly similar: 52 percent in New Orleans and Austin, 51 percent in Nashville, and 48 percent in Denver. On the face of it, New Orleans does not seem to have employment concentrated more highly in any particular industry or small subset of industries than the other areas; our distribution of employment seems at least similar to other thriving cities.
In some respects, however, even the apparently modest differences are instructive. For example, 13 percent of all workers in the New Orleans metro area (and 19 percent in Orleans Parish) are employed in the accommodation and food services industry, whereas in the other metro areas, this percentage hovers around 9 percent. Additionally, the New Orleans area’s share of workers in professional, scientific, and technical services is only 6 percent, compared to 10 percent of workers in Denver and Austin. Those percentages may seem modest, but 1 percent of the New Orleans area’s workforce represents over 5,000 employees.
Another way of looking more closely at our own diversification is the extent to which the distribution of jobs has changed over time. According to the census data, the New Orleans metro area has added over 10,000 jobs since 2002. The share of employment in educational services has more than doubled, and we have experienced significant increases in public administration, professional, scientific and technical services, as well as transportation and warehousing jobs. Our largest decreases have come in the percentages of regional jobs in retail trade, manufacturing, finance and insurance, and health care and social assistance, although each of those areas still constitute a large share of our overall employment. In other words, through this coarse and perhaps overly simplified measure, we seem to have largely experienced increases in employment in sectors that are arguably more durable.
The subject of economic diversification is complex, of course, but it is the subject of study and action in many leading business and economic development groups in the region. We have become accustomed to oversimplified narratives about our area: that our main game is tourism, for example, or that our economy has been transformed by large numbers of young, “creative class” workers. These perceptions, and others, have elements of truth, but it serves our leaders well to continue to examine our region strategically and in great detail to ensure that we are both less vulnerable to industry risks and well-positioned to adapt to an ever-evolving and increasingly competitive national and global economy.
Robert Edgecombe is an urban planner and consultant at GCR Inc. He advises a wide range of clients on market conditions, recovery strategies, and demographic and economic trends.