Industry Space and Skill-Relatedness – a Concept for Regional Case Studies

A highly specialized regional economy is competitive, but its performance depends on the evolution of only a few industries. In turn, a diversified region lacks such unique specializations and its economic risks are widely spread across different industries. As complement to this dilemma the evolutionary economic geography highlights the relevance of inter-industrial relatedness for the evolution and resilience of regions. It is assumed that cross-fertilization of knowledge components takes place particularly among related industries because of an overlap of their knowledge bases.

Our contribution to this strand of literature is a new method for the analysis of a region’s industrial structure and economic resilience in a way that highlights human capital similarities, or the skill relatedness, among industries. Industries are skill-related if the number of real job switches exceeds the number of expected labor flows (baseline) between them. This indicator of skill-relatedness is displayed with the method of relative risks. For this purpose, we use data on job switches from the Employment history database (BeH).

This approach was applied to investigate the economic development in the Saarland between 2008 and 2012. The core of the analysis is the industry space, a network that links industries with similar human capital requirements. We show that the industry space is a convenient way to visualize the (changing) capability base of the Saarland. Furthermore, we plot detailed sub-networks for a number of prominent industries in the Saarland. We can show that the region’s traditional manufacturing base is almost unconnected to the emerging high-technology activities that are central in the region’s innovation agenda.