The Hachman Index: A Measure for Industry Employment Diversity
May 12, 2025How does a region maintain and grow its local economy? One strategy involves diversifying employment across multiple industries. This insulates the region from a decline in a single industry which could have an outsized negative impact if that industry employs a significant share of the workforce.
Industries respond differently to changes in products, business cycles, and market conditions. High concentrations of employment in one industry can be found throughout the United States. Manufacturing in Detroit, leisure and hospitality in Las Vegas, or information technology in Silicon Valley are all examples found here in the U.S. Each of these industries have been susceptible to shocks in recent history. The 1970s energy crisis saw U.S. consumers turning towards more fuel-efficient vehicles manufactured by foreign competitors which contributed to a downtown in Detroit’s auto industry. Leisure and hospitality in Las Vegas experienced significant employment losses at the beginning of the COVID-19 pandemic. Tariffs increase the cost of importing parts for semiconductor research, development, and final assembly. These could be arguments for having a diverse industry base when markets shift.
“Industrial diversity, in and of itself, is not necessarily a good or bad. If a region has one big industry, like the energy industry in North Dakota today or the timber industry in Oregon in the 1970s, the region can do extremely well when that one industry is booming. The problem arises when that one key sector is down. Then your regional economy suffers more as there are fewer other types of businesses to drive growth,” writes Josh Lehner, economist formerly with the Oregon Office of Economic Analysis. He continues, “Overall a more diverse economy is better able to withstand different types of recessions…spreading a region’s eggs across more baskets tends to create more resilience in the long run.”
If one of the goals for a local economy is industrial diversity, how can we measure this and track changes over time? Frank Hachman of the Bureau of Economic Research at the University of Utah designed a model using payroll employment data analyzing how closely the employment distribution of the target area matches that of a reference area, usually the state or nation.
The Hachman Index has a value of 0-100. Higher index values indicate an industry employment mix that more closely matches the reference area, while lower values describe a mix dissimilar to that of the reference area. For our analysis we used data from the 2023 Quarterly Census of Employment and Wages (QCEW) for Oregon’s counties with the state of Oregon as the reference area.
The Hachman Index is calculated as the inverse of the weighted sum of the location quotients, by industry for each analysis county, across all industries. A location quotient (LQ) is the share of a county’s employment in a specific industry divided by the share of the reference area’s. The LQs are weighted by the share of the county’s employment in a specific industry. Counties with a greater share of employment in a select few industries have a relatively high weighted sum of LQs and subsequently a relatively low Hachman Index value. Conversely, counties that more closely resemble the statewide employment distribution have relatively low weighted LQs and a high Hachman Index value.
Local Results
In 2023, Clackamas County had the most diverse industry mix of all Oregon counties, followed by Lane and Multnomah. Looking back twenty years at 2003 results, we can see that diversity rankings remain relatively stable with a few notable exceptions. Polk County’s index value increased by 0.2 points, moving it from the 27th to the 17th position. Curry County’s value decreased by over 0.1 points, placing it in the 27th spot when it was previously in 15th. The top four counties in 2003 were the same in both reference years. Examining Oregon county trends in employment, gross domestic product, and per capita personal income from 2003 to 2023 compared with industry diversity index numbers doesn’t show a correlation between more diverse economies and greater success in those metrics.
Limitations of the Data
This analysis uses QCEW data as a time series. Non-economic industry code changes reclassify employees as part of different industries which don’t reflect a fundamental change in economic diversity. If you’re in a small county with a big firm or cluster of firms in one industry, and there’s a market downturn, the county’s economic diversity score can improve because employment is more evenly distributed among the remaining industries, even if the community is not better off as a result.
An example of this issue is present with Benton County. It was the 25th most diverse economy in Oregon in 2003. By 2023, it moved up 18 spots to the 7th most diverse. In 2012, universities were reclassified from state and local government (NAICS 611) to only local government (NAICS 611). The LQ for NAICS 611 in 2012 was 14.9, but after the reclassification in 2016 the LQ dropped to 3.2. A significant change in employment to a lower LQ industry in an area leads to an industry mix that looks less concentrated in education, and therefore more diverse.
The means by which a regional economy achieves lesser or greater diversity merits scrutiny. One strategy for achieving greater industry diversity is when an economy adds new businesses and jobs in industries that didn’t exist. Losing specialty businesses due to closure or relocation is another less desirable strategy for achieving the same result. The Oregon of today more closely resembles the U.S. than in years past with jobs growing across multiple sectors.