Regions experience regular economic shocks and fierce rivalry in a linked world economy. Knowing the causes of local job increases has become quite important for legislators and academics. Recent theoretical developments underline the significance of various relational distances affecting the advantages of spatial clustering of economic activities.
From 2004 to 2015, a study concentrating on France’s labour market areas, “geographical areas within which most of the labour force lives and works,” provides a fresh understanding of how industry diversification influences local employment.
Research shows that a diverse range of interconnected sectors can significantly boost employment growth. This finding has important implications for regional development plans.
The study provides an overview of various research efforts from across the continent and highlights some of the key challenges facing European nations.
Diversity-related vs unrelated
Economic geography literature distinguishes between two forms of diversity, which are related variety and unrelated variety. Here, variety is industrial diversity, that is, the several types of industrial sectors or technologies, more especially, their variation. The consensus is that knowledge spillovers inside an area, which are known to increase employment, mostly affect connected businesses and, to a limited extent, unrelated businesses.
Related variety explains a condition whereby businesses share common elements, as do biotechnology and drugs. By means of their leveraging of knowledge bases, technology, and talents, such aspects enable synergy, cooperation, and invention.
On the other hand, unrelated variation characterises a situation in which sectors have little in common, as do agriculture and software development. Unrelated businesses operate in quite diverse fields, which results in less direct synergy but may encourage innovation by difference.
Effects on employment
Although unrelated variety protects against industry-specific downturns, it has less direct effect on job growth than related variety. Our study method distinguishes between these two variants at the local level, that is, within a labour market area, and at the neighbourhood level, that is, between neighbouring labour market regions.
Particularly in times of economic boom, a study by Nadine Levratto, Directrice de Recherche au CNRS, Université Paris Nanterre – Université Paris Lumières, and economist Mounir Amdaoud reveals that areas with high related variety had more job increases from 2004 to 2015. Industries such as manufacturing, chemicals, and IT, which clearly showed great benefits on local employment, showed this effect especially.
Industries provide circumstances for interactive learning and innovation when their knowledge bases, technology, or supply chains match. This approach promotes multidisciplinary information flows, therefore improving the capacity of areas to develop and adapt. It can help strike a balance between regional diversity, which may suffer from too much cognitive distance, and regional specialisation, which runs the danger of stagnation due to industries’ too close proximity, a condition economists call “lock-in.”
Unrelated variation revealed a more complicated link with occupation. Although local unrelated variation cushioned areas from economic shocks (because sectors are less subject to industry-specific downturns), it did not directly stimulate job development as related variation did. Furthermore, a detrimental effect of unrelated variation in adjacent areas on local employment dynamics was observed.
Knowledge flows from surrounding areas contributed to lessening the effect of the economic shock during the 2008 worldwide financial crisis. Related businesses served as a buffer, steadying local employment and shielding areas from further losses.
“Another crucial difference between rural and urban places is their respective character. Our study revealed that related variations in diversity had a more noticeable positive impact in urban regions, where rapid innovation and employment growth are facilitated by significant concentrations of industries. Less dense industrial ecosystems in rural areas probably contributed to their lesser advantage from these information spills. This urban-rural gap emphasises the requirement of customised economic policies to assist various geographical demands,” stated Levratto and Amdaoud.
Implications for policy
Promoting sectoral diversity, especially the related variation, should be a top concern for legislators. They could promote cooperation among adjacent industries in areas to improve resilience and expansion.
Such action would involve helping the growth of innovation clusters, where companies in related fields are geographically concentrated, or platforms for cross-sectoral cooperation, whereby companies, colleges, research labs, and government agencies might exchange ideas and investigate joint ventures.
Encouragement of interregional collaboration could also help to distribute the advantages of linked variety among surrounding areas, particularly in times of economic crisis.
Policymakers should also take into account the part that unconnected diversity plays. Although unrelated industries might not immediately boost employment, by diversifying the area economy, they provide stability when economic uncertainty rules.
Encouragement of a balance between linked and unrelated industries could present the best of both worlds: economic stability and innovation-driven development.
Local employment growth in France is mostly driven by sectoral diversity, particularly in connected sectors. To ensure that areas flourish, however, politicians have to encourage cross-regional cooperation in addition to helping local businesses expand. The lessons from France’s labour marketplaces offer ideas for areas all around trying to negotiate the challenges of economic development.
The role of industrial diversity in shaping local employment trajectories in France is both nuanced and critical. The research by Nadine Levratto and her colleagues sheds light on how the structure and composition of regional economies directly influence their ability to generate jobs and withstand economic turbulence.
The findings clearly highlight that related variety, where industries share technological, knowledge-based, or skill-related proximities, plays a central role in promoting sustained employment growth. By facilitating collaborative networks and enhancing innovation potential, related industries create fertile ground for adaptive and dynamic labour markets, particularly in urban centres.
The benefits of related variety are most pronounced during periods of economic expansion, but its importance also extends into times of crisis. As shown during the 2008 financial crisis, knowledge spillovers from related industries in neighbouring regions served as a buffer, mitigating job losses and offering a stabilising effect.
This speaks to the resilience-building capacity of related industrial ecosystems, especially when they are not confined to a single labour market area but are connected across regional boundaries.
At the same time, the role of unrelated variety cannot be dismissed. While it does not have the same direct positive impact on employment growth, its capacity to cushion regions from sector-specific downturns makes it a vital component of economic resilience.
A diverse industrial base, incorporating unrelated sectors, acts as a hedge against volatility, ensuring that regional economies are not overly dependent on the fortunes of a narrow set of industries.
The urban-rural divide in the benefits derived from industrial diversity also calls for differentiated policy approaches. Urban areas, with their dense industrial networks and greater access to knowledge resources, are naturally positioned to take greater advantage of related variety.
Rural regions, on the other hand, may require more targeted support to build the foundational infrastructure needed to enable meaningful knowledge exchanges and innovation. This could include investment in transport and digital connectivity, support for local entrepreneurship, and the development of regional innovation hubs.
For policymakers, the takeaway is clear: promoting sectoral diversity, with a strategic emphasis on related industries, is a powerful lever for local employment growth and regional economic resilience. Strategies could include promoting industry clusters, facilitating cross-sector partnerships, and encouraging interregional knowledge flows. Moreover, maintaining a balanced mix of related and unrelated industries ensures that regions are not only dynamic but also robust in the face of economic shocks.
France’s experience offers valuable lessons for other countries and regions navigating the twin challenges of economic development and labour market volatility. By leveraging the insights from this study, regional planners and decision-makers can craft more informed, context-sensitive economic policies.
Ultimately, building resilient, innovative, and inclusive local economies will require not just a commitment to diversity, but a deep understanding of the types of diversity that matter most, and the mechanisms through which they translate into employment gains. The future of regional growth lies in ecosystems where industrial variety is not just present, but purposefully cultivated to drive both prosperity and stability.