Modular structure in labour networks reveals skill basins

There is an emerging consensus in the literature that locally embedded capabilities and industrial know-how are key determinants of growth and diversification processes. In order to model these dynamics as a branching process, whereby industries grow as a function of the availability of related or relevant skills, industry networks are typically employed. These networks, sometimes referred to as industry spaces, describe the complex structure of the capability or skill overlap between industry pairs, measured here via inter-industry labour flows. Existing models typically deploy a local or ‘nearest neighbour’ approach to capture the size of the labour pool available to an industry in related sectors. This approach, however, ignores higher order interactions in the network, and the presence of industry clusters or groups of industries which exhibit high internal skill overlap. We argue that these clusters represent skill basins in which workers circulate and diffuse knowledge, and delineate the size of the skilled labour force available to an industry. By applying a multi-scale community detection algorithm to this network of flows, we identify industry clusters on a range of scales, from many small clusters to few large groupings. We construct a new variable, cluster employment, which captures the workforce available to an industry within its own cluster. Using UK data we show that this variable is predictive of industry-city employment growth and, exploiting the multi-scale nature of the industrial clusters detected, propose a methodology to uncover the optimal scale at which labour pooling operates.