American Institute of Certified Planners (AICP) Practice Exam

Which method determines the level of basic sector employment by comparing a local economy to a larger geographic region?

1. Input-Output Modeling

2. Shift-share

3. Location Quotient

4. Economic Benchmarking

The correct answer is: Location Quotient

The method that effectively determines the level of basic sector employment by comparing a local economy to a larger geographic region is the Location Quotient. This analytical tool helps planners and economists assess the relative concentration of a particular industry or sector within a local economy compared to a more extensive reference region—such as a state or national average. By calculating the ratio of local employment in a specific sector to the total employment in that sector regionally, the Location Quotient reveals whether the local economy has a higher or lower proportion of that employment sector than expected. When the quotient is greater than one, it suggests that the local area has a specialization in that sector, indicating its significance in the local economy, often related to basic or export-oriented industries that bring in outside money. In contrast, a quotient less than one points to a lesser concentration, suggesting reliance on non-basic or local-serving businesses. Other methods mentioned, such as Input-Output Modeling, focus more on the interindustry relationships and the flow of goods and services within an economy, Shift-share analysis helps dissect the changes in employment across sectors into local factors, national growth, and industry trends, while Economic Benchmarking involves setting performance standards against peers and does not directly measure employment concentration like Location Quotient does. Thus