Defining functional labour market geography

Administrative labour market areas don’t necessarily capture the effects of commuting networks to deliver workers to firms. Photo: Craig Boudreaux on Unsplash.

Building Better Thriving Regions researchers Dr Dave Maré and Ben Davies have been delving into the nitty gritty of how to define the geography of interactions between employers and employees, and have recently published a methodology on how to define ‘functional labour market areas’.

Dave, a senior research fellow at Motu Economic and Public Policy Research, says defining the geography of a functional labour market is important for analysing spatial patterns of economic activity. “Traditionally, we might use administrative labour market areas, but these types of boundaries don’t necessarily capture the actual interactions that are going on within these populations, for example, the effects of commuting networks to deliver workers.”

Dave says they focussed on defining areas in which most residents work locally and most jobs are filled by local residents. “These functionally-defined labour market areas are largely self-contained, representing an obvious unit of analysis for studies of local labour markets.”

The method the pair has developed has advantages over other methods previously used in New Zealand. “It doesn’t require much ‘supervision’ to apply, and it produces indicators of how robust the definitions are. It removes the subjective judgements about where labour market area boundaries might lie – this type of subjectivity is not uncommon when studying labour market areas, and can lead to ad hoc modifications and biased inferences.”

“The method also supports top-down, hierarchical classifications of labour market areas and sub-areas. This allows us to ‘zoom in’ on the commuting patterns within each area, facilitating deeper spatial analyses of economic activity.”

Dave and Ben used historical New Zealand census data on commuting flows to illustrate the method and to summarise changing labour market boundaries from 2001 to 2013. The data and code used in the paper are available to download.

Read the report by the Motu/BBHTC Thriving Regions research team:

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