Location quotients (LQ) compare the relative concentration in a specific area to the concentration in the U.S. They are mainly used for descriptive and comparative purposes. The formula is LQ = Local Concentration / National Concentration, or more specifically the formula for the Employment LQ is:
LQ ir = (xir/xr) / (xin/xn)
where
xir = employment of sector i in region r
xr = total employment in region r
xin = employment of sector i in the reference region
xn = employment in the reference region
Typically, the reference region is the country in which region r resides, but it might also be a state or regional level. LQs can also be calculated using Output or Labor Income instead of Employment.
An LQ equal to 1 signifies that the local share is equal to the national share. An LQ of less than 1 means that the local share is less than the national share. An LQ of greater than 1 means the local share is greater than the national share and is typically an exporter or perhaps has a specialization in that Industry.
For more information, visit the BLS.