What Causes High Unemployment Rates?

What is a job market diversification score? This year, LinkUp came up with a method for assigning a metric to metropolitan statistical areas (MSAs) in our database that measures how varied that city’s job market is in terms of industries, job types, and companies. A city that is heavily dependent on one company or industry would have a lower score. Think: Las Vegas’ reliance on tourism and entertainment, or Rochester, Minnesota’s reliance on the Mayo Clinic. If tourism or the Mayo Clinic go bust, these cities will suffer. Austin, Texas, however, is not too dependent on any particular industry, company, or type of job, so the fall of one entity will not affect it, giving it a higher score.

Last time, we used job market diversification to predict Amazon’s choice for its HQ2. In this round of job market diversification scoring, we compared the scores with the unemployment rates for cities. In large markets, we found a strong correlation between high scores and low unemployment. San Francisco, for example, has the 4th highest diversification score and has the 2nd lowest unemployment rate among large market MSAs.