April 2016: Locating Economic Clusters

In this month’s series of posts, we will look at New Jersey’s industries and where they are located around the state and in the City of Newark.  Every industry can be classified according to the North American Industry Classification System (NAICS).  We aggregate these NAICS classifications into four main sectors:

  1. Agriculture, manufacturing, and logistics
  2. Professional services
  3. Healthcare, education, and government
  4. Retail, hospitality, and other services

Employment data comes from three main sources: The Unemployment Insurance Wage Records for private sector businesses, the Office of Personnel Management for federal jobs, and the Quarterly Census for Employment and Wages for information on firm structure and establishment location.  The U.S. Census Bureau pulls together this information, which you can access yourself at onthemap.ces.census.gov.

When interrelated industries are highly concentrated in the same geographic area, we call this a “cluster.”  Industrial clustering can create a comparative advantage by reducing travel time between suppliers or by sharing from a common specialized labor pool.  When one region does a particular task very well, it can bring in outside revenue from the region, state, or nation, strengthening the local economy.

Clustering occurs naturally through market decisions by autonomous firms.  Every investment made in a particular sector makes the locality more attractive to similar businesses, leading to an uncoordinated but virtuous cycle of further investment.  Clustering can also be stimulated deliberately, through subsidies, tax breaks, designated incubator spaces and corridors, strategic investment by anchor institutions and governments, marketing campaigns, and other forms of public and private coordination, cooperation, and advocacy.

This month we look at where clusters are located in New Jersey and in Newark.