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Florida State University 
Department of Urban and Regional Planning
Planning Methods III: Forecasting 

Topic
Summary

MR Calculation

MR
Interpretation

Calculating
Basic
Employment

Example

Key Concepts

Lessons to
be Learned

Discussion
Questions

References

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MINIMUM REQUIREMENTS TECHNIQUE

Topic Summary

Recall that the Location Quotient Technique determines the levels of Basic and Non-Basic local employment through a comparison between Local conditions and (usually) National conditions. Directly through this comparison, by calculating individual industry location quotients, specializations in the local economy can be identified and individual industry Basic sector employment is then calculated via a second formula.

In contrast to the LQ Technique, the Minimum Requirements Approach (MR) compares local conditions with those of a sample of similarly sized regions, for example, a local county of approximately one million people is compared to four other counties of the same approximate size. For each industry, then, the MR technique assumes that the "minimum shares region" has just enough employment to satisfy local demand for that industry's goods and services. It follows that all other regions will have some Basic sector employment because their "share" in that industry is greater than that in the "minimum shares region".

Before turning to the specific calculations of this approach, a conceptual example might help to illustrate this technique. If we want to determine if County X has Basic sector employment in Industry I using the Minimum Requirements Approach, we would begin by identifying some similarly sized counties for comparison. (It should be noted that this is a very simplified version of this approach and is used for conceptual purposes only!) The following data has been gathered:

In our conceptual example above, we have identified three counties similar in key characteristics to our County X. We have then calculated a share of the local employment for Industry I to determine the "minimum share region", which is shown above to be Comparison County 1. This approach assumes that local demand is met with a local share of approximately 0.027 (or 2.7%); this employment is identified as Non-Basic. Any local employment above this share is deemed Basic, because it is assumed that this employment would serve non-local needs.

Again, the key concepts to take away from this Topic Review are: 1) the MR approach compares the local region to several similarly sized region; 2) a "minimum shares region" is identified for each industry to determine the necessary level of Non-Basic employment for each industry for these regions; and 3) Basic Sector employment can then be calculated from this minimum share.

Minimum Requirements Calculation

To utilize the Minimum Requirements the first step is to identify a sample of similarly sized regions. However, it is imperative to note that "size" (usually defined by population) should not be the single factor to identify your comparison regions. Other factors, like location, economic factors, or others deemed important by those analysts utilizing this technique should be considered when selecting your comparison regions.

It is also important to note that these comparison areas are not going to precisely match the characteristics of your region. Because an industry share is calculated, close to exact matches on specific characteristics are not required. Therefore, comparisons between a region with a population of two million and other regions ranging in population from one to three million are not considered a fatal flaw in this method.

After identifying the sample comparison areas, total industry and individual industry figures must be acquired for each of these geographic units. If outputs or payrolls are being used in this technique, this data would also be necessary.

At this point the calculation of industry shares can be easily performed in a spreadsheet or using a calculator. Within each area and for each industry a simple share should be calculated using the following formula:

These shares must be between 0 and 1, but not at the very ends of this range.

As in our conceptual example above, the share for each industry for each region is calculated. These can then be compared to identify the "minimum shares region" for each industry. As noted above, our minimum shares region was determined to be Comparison County 1 with a share of 0.027.

Interpreting these industry shares in the context of the MR approach is quite simple. The region with the lowest share for a given industry is identified as the minimum shares region. Any employment above that share is then identified as Basic employment because up to that share is assumed to be necessary to meet local demand for an industry's goods and services. In our conceptual example we determined that for Industry I a share of 0.027 is necessary to meet local demand and that any employment above that share is, by definition, Basic.

If the local region you wish to analyze had been determined to be the minimum shares region for Industry I, then it should be clear from your understanding of this technique that there would be no Basic employment for that Industry for your region. In short, if your region has the minimum share for a given industry then you would be exporting no goods and services for that industry.

Calculating Basic Employment

As noted above, when you reach this point it is assumed that for each industry a "minimum shares region" has already been identified and the minimum share is known. Once you have identified those industries that your local region will have some Basic sector employment (it is not the minimum shares region for these industries), you will then move on to calculate the total Basic sector employment for your region. To do this you employ the following formula:

Examining this formula more closely, we see that to allocate employment to the Basic Sector we simply subtract the calculated "minimum share" from the local economy share and multiply that number by the total employment in that local economy.

From our conceptual example above, it would follow that the Basic Sector employment for County X in Industry I would be:

Basic Emp = (Regional Ratio - Min Share Ratio) X Total Regional Emp

Basic Emp = (0.050 - 0.027) X 1,000,000 = 23,000

Therefore, the Basic Sector Employment in County X for Industry I would be estimated at 23,000. This suggests that the other 27,000 jobs in this industry (50,000 - 23,000) were necessary to meet local demand.

The final step in our process is the same as for all our other Economic Base Techniques, to total up the Basic sector employment for all industries and to calculate the regional Base Multiplier.

Example

For an example of this technique visit the MR Example page.

Key Concepts

• The basic theory behind the Minimum Requirements Approach: the use of a sample of comparison areas to determine the existence of Basic employment in each industry

• The concept of "minimum requirements"

• The Minimum Requirements formulas and the range of possible results of these calculations

• Interpretation of the calculated shares for each industry; Identification of the "minimum shares region"

• The calculation of Basic sector employment by industry

• The importance of using logical and functional criteria when making your selections of comparison regions

• Possble refinements to the Minimum Requirements technique (from Klosterman reading)

Lessons to be Learned

• "The minimum requirements approach compares an industry's local employment patterns to a sample of similarly sized regions, rather than to the nation as a whole." (Klosterman, p. 150)

• Planners often rely upon comparisons between roughly similar units to gain a better understanding of local conditions. This is a time-honored technique of the profession as planners have long sought to understand the local picture by looking at the situation in comparable units. This is a technique that is used in specific techniques like population projections and in the general , in the plan-making process.

• Like the LQ technique, the MR approach is very useful because it allows the planner to identify and interpret differences between local conditions and other similar geographic units. For example, how does Seattle's economy compare to a sample of West Coast cities like Los Angeles, San Francisco, Portland, Sand Diego, etc.?

• Students should recognize the "geographic hierarchy" that is developing in these economic base techniques. In the Assumption Technique there was no comparison area; in the Location Quotient technique a single larger geographic unit is the comparison unit; lastly, the Minimum Requirements technique identifies a number of comparison areas, matched to the local area by specific criteria. This general approach, examining a locality, comparing it to the State or Nation, and then comparing it to similar units, is the basis for much of what is a basic level of analysis in planning.

Discussion Questions

• What are the key assumptions of this technique?

• When using the MR technique, when is the presence of Basic employment indicated?

• Identify three criteria that you would use to identify comparison cities if you were using the MR approach to study Seattle's economy. Why did you choose each of these criteria?

• Do you see any limitations to this technique? In what cases might the location quotient technique be a better choice to study the local economy?

• What refinements to the MR technique does Klosterman indicate might be used by analysts? Why does he suggest that the "second minimum shares adjustment" might be useful?

References

Klosterman, Richard E. 1990. Community and Analysis Planning Techniques. Rowmand and Littlefield Publishers, Inc. Savage, Maryland. See Chapter 11.

Klosterman, Richard E., Richard K. Brail, and Earl G. Bossard. 1993. Spreadsheet Models for Urban and Regional Analysis.

Moore, Craig L. 1975. "A New Look at the Minimum Requirements Approach to Regional Economic Analysis." Economic Geography 51: 350-356.

Moore, Craig L. and Marilyn Jacobsen. 1984. "Minimum Requirements and Regional Economics, 1980." Economic Geography 60: 217-224.

Ullman, Edward L. and Michael H. Dacey. 1960. "The Minimum Requirements Approach to the Urban Economic Base." Papers and Proceedings, Regional Science Association 6: 175-194.

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