The Location and Growth of Business and Professional Services in American Metropolitan Areas, 1976–1986

Abstract

The economic base of American metropolitan areas relies increasingly on business and professional services. We explore the causes for fast growth of these sectors in metropolitan areas for 1976–86. Business and professional services produce new types of inputs to a large number of sectors. They encompass far more than externalization of activities once produced internally by manufacturers. We emphasize localization of business and professional services in selected metropolitan areas driven by the demand for skilled labor and information.

Using employment data for SMSAs, we present empirical evidence verifying the concentration of business and professional services in the largest metropolitan areas and a temporal lag in their market penetration of smaller metropolitan areas. We introduce a new measure called a growth quotient to show that these services are growing rapidly in selected regional metropolitan areas. SMSAs in the industrial belt, especially in their central counties, rely on business and professional services to generate new jobs. Elsewhere metropolitan growth is more diversified.

Key Words:

• business and professional services
• subcontracting
• localization economies
• innovation
• standard metropolitan statistical areas
• growth quotient