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RESEARCH ENGINE FOR THE WORLD. ENGINE OF GROWTH FOR A NATION.
business » economy
A Deep Dive Into Clusters
W
hat’s a cluster? It’s a regional
While local clusters account for most
concentration of related
of the employment and employment
industries in a particular
growth in regional economies, traded
location. Clusters consist of companies,
clusters register higher wages and much
suppliers and service providers as well as higher levels of innovation. Local clusters
government agencies and other
provide necessary services for
institutions that provide spe-
the traded clusters in a region,
cialized training and education,
and both are needed to sup-
information, research and tech-
port a healthy and prosperous
nical support.
regional economy.
Clusters enhance productiv-
In Southeastern Michigan,
ity and spur innovation by
the employment breakdown
bringing together technology,
among local vs. traded sector
information, specialized talent,
is 62 percent local and 38 per-
competing companies, academ- Jonathan
cent traded. For the nation, the
Silberman
ic institutions and other orga-
breakdown is 64 percent local
nizations. Close proximity, and
and 36 percent traded.
the accompanying tight link-
Metro Detroit’s largest local
ages, yield better market insights, more
sectors in 2013, with employment in
refined research agendas, larger pools of
parentheses, are health services (243k),
specialized talent and faster deployment
hospitality establishments (154k), com-
of new knowledge.
mercial services (133k), and local real
Regional economies are made up of
estate, construction and development
two types of clusters, each with different
(85k). Net local cluster job creation,
patterns of geographic presence and dif-
1998 to 2013, is minus 87,634. The only
ferent competitive dynamics.
local sectors with positive employment
Traded clusters are groups of related
growth over 1998 to 2013 are local health
industries that serve markets beyond
service, local hospitality, and local educa-
the local region. They are free to choose
tion and training.
their location of operation (unless the
Strong traded sectors in Metro Detroit,
location of natural resources dictates
with their 2013 employment in paren-
where they can be) and are highly con-
thesis, are business services (179k);
centrated in a few regions.
automotive (88.1k); metalworking tech-
Because traded clusters compete
nology (33.6k); marketing, design and
in cross-regional markets, they are
publications (25.8k); upstream metal
exposed to competition from other
manufacturing (9.5k); and plastics (5k).
regions. Examples of traded clusters
All these traded sectors are closely inter-
include financial services in New York
related with automotive. For example,
City, information technology in Silicon
business services include corporate
Valley, and video production and distri-
headquarters for General Motors, Ford,
bution in Los Angeles. Traded clusters
Fiat-Chrysler and many auto suppliers.
are the “engines” of regional economies;
The local economy is not diversified
without strong traded clusters, it is virtu- in its traded sectors, which places Metro
ally impossible for a region to reach high Detroit at risk of a negative shock to
levels of overall economic performance.
the automobile industry. Further, while
Local clusters, in contrast, consist of
employment in the automotive traded
industries that serve the local market.
sector has increased since the recession’s
They are prevalent in every region of the end, it is down substantially since 1998.
country, regardless of the competitive
Employment in all Metro Detroit traded
advantages of a particular location. As
sectors has fallen by 187,346 since 1998.
a result, a region’s employment in local
Detroit’s economy remains exceeding-
clusters is usually proportional to its
ly reliant on the automotive and related
population. Moreover, the majority of a
traded clusters. Efforts to diversify the
region’s employment comes from jobs in local economy have not been successful.
local clusters.
Being highly dependent on the cyclical
Because local clusters are tied
automotive industry, which is subject to
to the regions in which they are
global competition and influenced by
located, they are not directly
the price of gasoline and interest rates,
exposed to competition from other
makes the Metro Detroit economy par-
regions. Examples include local enter-
ticularly vulnerable to a recession or just
tainment such as concerts, sporting
a slowdown in the automotive sector.
events and movie theaters; local health
Jonathan Silberman is a professor of economics
services such as drug stores and hospi-
at Oakland University. You can contact him at
tals; and local commercial services such
silberma@oakland.edu.
as drycleaners and lawn care.
*
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Chicago, IL 60606
(877) 642-AFHU (2348)
afhu.org/cga5
2076390
38 March 10 • 2016