In an interconnected global economy, regions face recurring economic shocks and intense competition. For policymakers and researchers, understanding the drivers of local employment growth has become critical. Recent theoretical advances highlight the importance of different relational proximities that influence the benefits of the geographic clustering of economic activities.
Our research focusing on France’s labour market areas – “geographical areas within which most of the labour force lives and works” – from 2004 to 2015 offers new insights into how industrial diversity affects local employment. The study finds that having a variety of industries – especially those related to one another – can be a significant driver of employment growth. This finding has crucial implications for regional development strategies.
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Economic geography literature distinguishes between two types of diversity: related variety and unrelated variety. Here, variety refers to industrial diversity or, more precisely, the different kinds of industrial sectors or technologies. The prevailing argument is that knowledge spillovers within a region, which are known to boost employment, occur primarily among related industries and to a limited extent between unrelated industries.
Related variety describes a situation in which industries share common elements, as do pharmaceuticals and biotechnology. Such elements allow for synergies, collaboration and innovation by the leveraging of similarities in knowledge bases, technologies and skills. By contrast, unrelated variety describes a situation in which industries have little in common, as do agriculture and software development. Unrelated industries operate in entirely different domains, leading to weaker direct synergies, but potentially fostering innovation through difference.
Impacts on employment
While unrelated variety offers protection against industry-specific downturns, it does not have the same direct impact on employment growth as related variety. Our research approach distinguishes between these two varieties at the local level (i.e. within a labour market area) and at the neighbourhood one (i.e. between adjacent labour market areas).
Our analysis finds that regions with industries with high related variety experienced higher employment growth from 2004 to 2015, especially during periods of economic expansion. This effect was particularly pronounced in sectors like machinery, chemicals and IT, which demonstrated strong positive impacts on local employment. We found that when industries share similarities in knowledge bases, technologies or supply chains, they create conditions for interactive learning and innovation. This process fosters intersectoral knowledge flows, enhancing regions’ capacity to adapt and grow. It can help provide balance between regional specialization, which risks stagnation due to industries’ excessive cognitive proximity – a condition economists call “lock-in” – and regional diversity, which may face challenges from too much cognitive distance.
Unrelated variety showed a more complex relationship with employment. While local unrelated variety cushioned regions from economic shocks (since sectors are less vulnerable to industry-specific downturns), it did not directly drive employment growth as related variety did. We also found that unrelated variety in neighbouring regions exerted a negative influence on local employment dynamics.
Employment and the 2008 financial crisis
During the 2008 global financial crisis, knowledge spillovers from neighbouring regions helped mitigate the impact of the economic shock. The neighbourhood effects of related industries acted as a buffer, stabilizing local employment and protecting regions from greater losses.
Drivers of local employment growth in France from 2004 to 2015
Fourni par l’auteur
Urban-rural dynamics
The difference between rural and urban areas is another important dimension. Our research found that related variety of diversity had a more pronounced positive effect in urban areas, where high concentrations of industries enable faster innovation and employment growth. Rural areas benefitted less from these knowledge spillovers, likely due to a less dense industrial ecosystem. This urban-rural divide highlights the need for tailored economic policies to support diverse regional needs.
Policy implications
For policymakers, fostering sectoral diversity, particularly the related variety, should be a priority. They could encourage collaboration between related sectors within regions to enhance resilience and growth. This would consist of supporting the development of innovation clusters where businesses in related sectors are geographically concentrated, or platforms for cross-sector collaboration where businesses, universities, research institutions and government agencies can share knowledge and explore partnerships. Promoting interregional cooperation could also help spread the benefits of related variety across neighbouring regions, especially during periods of economic crisis.
Policymakers should also consider the role of the unrelated variety of diversity. While unrelated sectors may not directly contribute to employment growth, they provide stability when economic uncertainty dominates by diversifying the regional economy. Encouraging a balance between related and unrelated sectors could offer the best of both worlds – innovation-driven growth and economic resilience.
Sectoral diversity – especially when it comes to related industries – is a key driver of local employment growth in France. However, for regions to thrive, policymakers must not only support the growth of local industries but also foster cross-regional cooperation. The lessons from France’s labour market areas provide insights for regions worldwide seeking to navigate the complexities of economic development.
