Growth and Change in the Service Sector of the U.S.: A Spatial Perspective Author(s): Thomas J.

Kirn Reviewed work(s): Source: Annals of the Association of American Geographers, Vol. 77, No. 3 (Sep., 1987), pp. 353-372 Published by: Taylor & Francis, Ltd. on behalf of the Association of American Geographers Stable URL: http://www.jstor.org/stable/2563272 . Accessed: 09/10/2012 20:30
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Growthand Change in the Service Sector of the U.S.: A Spatial Perspective

Thomas J. Kirn Dick Conway and Associates,2323 EastlakeAvenue East, Seattle,WA 98102

is that recognition servicesplaya majorrolein developedeconomies, there growing Abstract. Although This study is its the knowledge concerning servicesector,including spatialcharacteristics, quitelimited. from1958 to 1977. of examinesthespatialstructure theU.S. servicesectorand changein thatstructure and changefora sample of U.S. SMSAs It is based on an analysisof serviceemployment employment that areas. Most of the change in service structure took place duringthe study and nonmetropolitan and servicesand in finance, insurance, realestate.Many periodwas focusedin businessand professional fromlargerto smallerplaces and exhibited bothdownfiltering in individualindustries thesegroupings its in deficiency manyspecialized the in growth theSouth.As a result, Southreversed relative verystrong in and both the concentration and relative betweentotalemployment growth services. A relationship regional and serviceswas observed.Studyresults suggest that of growth business,professional, financial not servicegrowth could benefit only large SMSAs but manysmaller development policies thatfoster places as well. downfiltering, nonmetropolitan. hierarchy, Key Words: servicesector,spatial structure,

considerablerecent decades has stimulated searchon the natureof the servicesectorand its role in the economy(Daniels 1986; Beyers and Alvine 1985; Marshall1985; Noyelle 1983; Stanback et al. 1981; Menchik1980; Marquand1979; becauseof thesize O.E.C.D. 1978). Nevertheless, our of and diversity theservicesector, understandincludingits ing of many of its characteristics, In is spatialcharacteristics,quitelimited. thisstudy of I examinethespatialstructure U. S. serviceemand the changes thatoccurredin that ployment from1958 to 1977. What distinguishes structure of from mostother studies theservice thisresearch of sectoris its investigation servicesin considerable sectoral detail and its examinationof the cenplace notonlyin thedifferent changestaking of sus regions theU.S. butalso at all levels of the urbanhierarchy.

discussionof thereasonswhyserviceemin of growth serviceindustries re- a brief THE strong

ployment been growing has rapidly, examinethe I roleof servicesin regional development from two perspectives: in the context a region's ex(1) of ternalties and (2) in the contextof a region's internal development processes.

Reasons for the Growthof Service Employment

The rapidgrowth serviceemployment reof in bothfrom centdecades has resulted supplyfactors of and fromchanges in the pattern demand for services. On the demand side, therehas been a in shift finaldemandaway from goods and toward services(Fuchs 1968; Ginzbergand Vojta 1981). As incomes have grown,the share of consumer allocatedto goods has declined,and the spending shareallocatedto serviceshas increased.In part, a in thisreflects shift emphasisfromquantity to behaviorin advanced qualityof life in consumer The Role of Services in Regional economies(Nicosia and Mayer 1976). Development The intermediate demandforserviceshas also of the To understand spatialcharacteristics ser- grown in recent decades. This increased conof of it vice sectorgrowth, is necessaryto understand sumption servicesby the producers goods After and servicesis in partdue to firms externalizing development. theroleof servicesin regional
Annals the of Association Ame-ican of Geographers, 77(3), 1987,pp. 353-372 ? Copyright of 1987 by Association American Geographers

353

354

Kim

service functions that previouslyhad been per- to producers goods and services)to firmsloof formedinternally.More important have been cated in other servicesare exregions.Consumer changesin thebusinessenvironment, such as the portedprincipally sales to touristsand through growing size and complexity firms, growth travelers by individuals of the and livingin smallcenters of multinational firms,the increase in interna- purchasing goods and servicesin largercenters. tionaltrade,and the proliferation products.In The seconddimension a region'sexternal of of ties order competein an increasingly to complexbusi- is its imports.From an exportbase perspective, nessenvironment, have expanded amount import firms the substitution production (the within rethe of effort devoted to activitiessuch as planning, gion of goods and servicesthat had previously coordination, and controland consequently have beenimported) thesameregional has development increasedtheiruse of services (Stanback et al. impactas an equivalentincreasein exports.Mar1981). quand (1979) suggeststhatthe effectof a new Despite thisgrowth thedemandforservices serviceestablishment a regionis more likely in on frombothconsumers and businesses,it is gener- to be in import savingthanin exporting. A majorfocus of export-oriented ally acknowledged thatthemostsignificant cause regionalpolof serviceemployment has firms thatwould become growth been a supply- icies has been to attract side phenomenon the relatively slow rateof in- partof the region's exportbase. Recent contricrease in productivity, outputper worker,in butions theindustrial or to locationliterature suggest servicesrelative goods (Fuchs 1968; Haig 1975; that many traditional location factors,such as to Beyers,Alvine, and Johnsen costs and 1985). If consump- transportation and access to markets raw tion patterns remainconstant have become less important thanthey duringa period in materials, whichproductivity locationdecisions,while growsmoreslowlyin one sec- used to be in industrial tor than in othersectors,thenthe proportion of quality-of-life relatedfactors(e.g., climate,recthe labor force engaged in the low-productivityreational and cultural and opportunities, thequalsector would increase and the proportion the ity of local schools and public services) have in high-productivity sectorswould decline. A shift become moreimportant (Ady 1981; Lynch 1973; ofconsumption toward services wouldtend Joint EconomicCommittee patterns 1982). Because activto intensify shift employment the of towardserv- itiesrelatedto qualityof life are providedby the ices, the low-productivity sector. servicesector, characteristics a region'sserthe of vice sectorcan significantly influence ability its firms.Additionally, to attract given the growing intermediate demandforservices,it is likelythat Role of Services in a Region's External Ties locationdecisionsare influenced manyindustrial According export to base theory, region'sex- by thedifferential a of services availability producer forceof the regionalecon- amongregions. portsare the driving omy, and the partof the economythatdoes not Centralplace theory for providesa framework the exportis dependent upon theexportsectorforits explaining exportof consumerservicesfrom growth.By generating income,the exportsector largerto smallerplaces in the urban hierarchy. in is causes growthin the rest of the economy as a The theory less effective explaining patterns resultof the spendingof the exporting firms and of tradeforproducer services.This is because the their employees. servicesis less uniform demandforproducer spaThere is growingevidence thatservicesoften tiallythan is the demandforconsumerservices, a in constitute significant shareof a region'sexport and thefriction distanceis notas significant of of base. Havingstudied service the sector thePuget producerservices sales patterns it is forconas Sound Regionof Washington, Beyers,Alvine,and sumerservices(Beyersand Alvine 1985). Beyers Johnsen(1985) concluded that services are ex- and Alvine foundthatthetradeof producer servextentthanhas been realized ices betweenplaces did not follow a strict hierportedto a greater and thatserviceexportsare increasing a share archical pattern; instead services were traded as of businessactivity the servicesector.Smith's betweenplaces of thesame size, from in lower-level (1984) studyof Wisconsinindicatesthatservice places to higher-level places, and tradewas not can be an important of of withthenearest center a givensize. exports component theex- necessarily communities. therehas been an abundanceof both One portbase of nonmetropolitan Although and empiricalwork on centralplace important way in which servicesare exportedis theoretical sold theory, littleof it has focused on how the hierthe services through sale of producer (services

U.S. Service Sector archychanges over time, which is of particular relevanceto thisstudy.One notableexceptionis Parrand Denike (1970), who notethatin thereal world the composition the centralplace hierof archyis unlikely remainstable through to time. They identify threefactors the theybelieve to be the most significant sourcesof change in the hierarchy: shifts population, in changesin technology, and regional economic growth. Parr and a Denike (1970) notethat declineinthepopulation of a service area reduces demand at the center, makingit impossibleforsome functions conto tinueto makea profit. thenmove These functions to higher-order centers.A type of technological changethatcould affect structure thehierthe of thatyields archyis a new marketing technology a significant economies of scale, thus requiring much largermarket demandto be commercially viable thandid the old technology (Parrand Denike 1970). Such increasesin economiesof scale from could resultin a function being eliminated lower levels in the hierarchy. However,technologies thatreduce the diseconomiesof small size could enable certainfunctions (e.g., franchising) to operateprofitably lower levels in the hierat 1 than had previously beenpossible. The third archy sourceof changein thehierarchy regionalecois nomic growth.Parr and Denike (1970) suggest that as regions grow, certainfunctions become than suppliedfromlower levels in the hierarchy had previously been thecase. This occursbecause for thresholds these functions become attainable at lower-levelcentersas demand increases. A of down the hierarchy can movement functions from in which also result growth percapitaincome, can occur without populationgrowth.Additionally, even withoutgrowthin populationor per capita income, demandfor some typesof goods and servicesis likelyto grow while demandfor others declinesas a result changesin consumer of tastes.Such demandshifts resultin functions can downthehierarchy lower-order centers to moving is (if demandforthese functions growing)or in fromlower-order centers functions disappearing is (if demandforthesefunctions declining). Role of Services in a Region's Internal Development An intraregional on perspective regionaldevelfocusesupontheimprovement regional of opment Policies forincreasing productivity. regionalproimhave ofteninvolved infrastructure ductivity

355

provementsaimed at enhancing the marginal efficiency privatecapital investment of (Levin 1985). It is now recognized,however,that regional productivity be enhancednot only by can investments physical infrastructure, in such as roads, sewersand dams, but also by investments in service sector activities,such as education, workertraining, healthcare, and social services (Coffeyand Polese 1985). Over time,the focus in regionaldevelopment theory has shifted away froman emphasis on physicalcapital to an increasingemphasison humancapital and knowledge. In part, this is a result of the growing of recognition the significance technological of change and information economic developin ment.According Denison (1985), advances in to knowledgehave been the largestand most basic reasonforthe growth productivity the U.S. in of between1929 and 1983, accounting 55 percent for of the growth actual nationalincome per emin ployed person duringthe period. Education per worker of accountedforan additional27 percent thatgrowth. Reich (1983) has stressed central the importance humancapital to Americal's ecoof nomic future; suggeststhatthe skills, knowlhe for of labor edge,and capacity teamwork a nation's force will largely determine that nation's economic future. Service activitiesare instrumental in the advancement of and dissemination knowland training thelabor of edge and in theeducation force.Servicesplay a majorrole in researchand in and theyare important the dedevelopment, and dissemination information of and velopment Professional service firms other technology. provide firms witha variety servicesthatenhancetheir of and productivity competitiveness. From a regionalperspective, qualityof a the of region'sservicesectoris a key determinant its economicdevelopment. The ability a regionto of create new businessesand fosterthe growthof firms existing dependsin the long runon its service infrastructure (Hirschhorn 1979). In a study of thenorthern Goddard(1979) regionof Britain, observedan associationbetweenthe underrepresentation officefirms thepoor competitive of and of performance manyof the region's indigenous industries, particularly withrespectto industrial innovationand diversification. Noyelle (1983) that centers withstrong services suggests producer enjoy favorablegrowth prospectsbecause future will be concentrated producer in servjob growth ices and because advanced service centershold controlover the diffusion of increasingly greater innovation theflowsof investment. and

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The idea thateconomicdevelopment shouldbe Studiesoften groupserviceindustries a small into viewed froma broad perspectivethat includes numberof categoriesthatmask the behaviorof quality-of-life factorsis supported recentre- individualindustries. further A by objectivewas to searchon U.S. migration. Graves (1980) and Po- examinepre-1970andpost-1970 in patterns, order rell(1982) found recent that U.S. migration intointerrelationships patterns to gain insight betweenthe could not be explained adequatelyby narrowly location of services and the shiftin population definedeconomic factors, such as income levels growth that patterns occurred around1970. and unemployment rates.Theyfoundit necessary The desireforspatialdetailwas metby choosto incorporate theirmodels quality-of-life in fac- inga sampleof places stratified size from by each tors,suchas climate, recreation and of the fourcensus regions.SMSAs were used as opportunities, clean air, in orderto explainrecent migration pat- thespatialunitsforlargeplaces because theydeternsadequately.Services are important functional determi- finemetropolitan economicareas. For nantsof a place's qualityof life. Privatesector nonmetropolitan areas, countieswere used as the serviceactivities each region,places were seproviderecreation opportunities, spatialunits.Within sports,culturalactivities, education,restaurants, lected randomlyfrom four different place-size andentertainment. publicsector The provides parks, groups. The large metropolitan group included schools,publichealth services,and environmental SMSAs witha 1970 populationgreater thanone and regulation protection. million, the small metropolitan group included The variousdimensions the role of services SMSAs witha populationless thanone million, of in regionaldevelopment well as recentU.S. and thenonmetropolitan as counties weredividedinto spatial development patterns providea basis for two groups, with a 1970 populationof 50,000 formulating hypotheses thisstudy.Most of the serving the breakpointbetweenthetwo. I sefor as of each region;12 wereSMSAs, changein thespatialpattern servicelocationis lected24 areasfrom expected to be in producerservices, which are at least 5 of whichwere large SMSAs, and there moresignificant regional to development processes were 6 each of the large and small nonmetropolthanare consumer from itancounties. services.I also expectthat 1967 to 1977, whenpopulation was For each of thefour the growth greater regions, majorregional in nonmetropolitan than in metropolitan places, servicecenterwas includedin the data set. This serviceactivities in weremovingdowntheurbanhi- resulted the inclusionof New York, Chicago, at erarchy all levels. Service growth shouldhave and both Los Angeles and San Francisco in the been particularly s strongin the nation' fastest West. In the Souththereis no singleprimary regrowing region,theSouth,withservicesnotonly gional servicecenter.Random samplingresulted following growth also contributing it. I also in the selectionof Atlanta,Houston,and Dallas, to but have threeof the South's major service centers.The expectthat consumer services growth patterns reflected primarily populationand incomeshifts. places in the sampleare mappedin Figure 1. That producer sourceofemployment was the serviceshave played an important The primary data role in regionaldevelopment the during study pe- economic census conductedeveryfive years by riod should be reflected relationships between theU.S. BureauoftheCensus(1958, 1960, 1961a, in bothpopulation and the lo- 1969, 1970, 1971, 1972, 1978, 1979a, 1979b, and economicgrowth cationand growth producer of services.Places that 1979c, 1979d, 1980a, 1981). By selectingdata are to services expected have forthe years 1958, 1967, and 1977, it was posspecializein producer grown more rapidlythan places specializingin sible to obtaintwo study periods,one beforeand shift population of consumerservices or manufacturing. the to Finally, I one after relative growth areas. The first serviceshave been in- nonmetropolitan hypothesize consumer that studyperiodbestrumental thegrowth manynonmetropolitan gins in 1958 because theeconomiccensuseswere in of in places. conducted thatyear,notin 1957. Using botha nine-and a ten-year periodis not a seriousproblem because the analysisfocuses primarily upon therelativegrowth ratesamongindustries during Study Design each timeperiod,notupondifferences industry in The researchdesign was structured account growth to ratesbetweenthetwo timeperiods.Some forchangesbothin theU.S. urbanhierarchy were not covered by the ecoand service industries amongtheregionsof theU.S. Also I have incor- nomiccensuses. Data formostof theseindustries poratedconsiderablesectoraldetail in the study. were obtainedfromCountyBusiness Patterns, a

U.S. Service Sector

357

West Northcentral

Northeast

County gFir.hslopo
lomto County Sml

XeSouth.

Figure 1. The sample of places.

Census Bureau publication(U.S. Bureau of the Census 1961b, 1968, 1979e). Additionalsources (U.S. Buwere used to obtaindata on population reau of theCensus 1963, 1973, 1980b, 1982) and (U.S. Civil Seremployment federalgovernment vice Commission1958, 1967, 1976).2 In thesecinclude interest, studyindustries torsof primary 11 two-digit three pairsof SIC serviceindustries, indusindustries, and threethree-digit two-digit of industries). tries(see Table 1 fora listing study In analyzingthe data, I oftenfocus on broad subdivisions theservicesectorin orderto idenof the of tify characteristics groupsof relatedindustries. The most basic subdivisionof services is into producervs. consumerservices. Producer communications services include transportation; and utilities; wholesale trade;finance,insurance, and real estate;businessservices(SIC 73); legal and miscelorganizations; services;membership inlaneous services.All otherserviceindustries, in were cluding government, included theconsumer those services services, Amongproducer category. the spatialchangewere exhibiting mostsignificant business services; miscellaneousservices; legal and real estate;and services;finance,insurance, their industries the two-and threeat component to digitSIC levels. In thispaper,I refer thisgroup

of industries businessand professional as services and finance,insurance, and real estate. A majorproblem thatariseswhendealingwith geographicalareas of different size is that,because of disclosurerules, data are available for small places foronly a few industries. Including only variablesforwhich data were available for all 96 places would have made it impossibleto sectoraldetail. Instudyservices in significant stead,I collectedall availabledata foreach place, which means thatthe amountof data increases withsize of place. Approximately fourdifferent levels of data coverageresulted from thisprocess, withall SMSAs and 20 nonmetropolitan counties havingfullcoverageat thetwo-digit SIC level. Severalmeasures wereused to quantify spathe tial structure serviceemployment change of and in thatstructure time.The distribution emover of ployment amongindustries measured each was by industry's shareof totalemployment. measured I employment changeovertimeby normalized percentchangein employment each of thestudy over timeperiods.The indexof urbanization used was to indicatethe extent whichan industry's to emin ployment concentrated largeor smallplaces. was I quantified employment concentration amongreconcengionsby meansof theindexof industrial

358

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tration.Each of these measuresis describedin The indexof industrial concentration indicates the extent whichan industry's greater detailbelow. to employment is In selectinga measureof employment growth, concentrated amongregions.A value of zero for simplemeasures, suchas percent changeor annual the indexmeansthatindustry is employment disgrowth rate,were rejectedbecause it was neces- tributed among regionsin exactlythe same proas saryto compareindustry growth amongplaces or portions is totalemployment. an industry's As groupsofplaces with very different overallgrowth employment deviates increasingly from the rerates. Littlemeaningful is information derivedby gional distribution totalemployment, of concenthe rateof a specificindustry tration comparing growth increasesas does thevalue of the index. Analysisof variance(ANOVA) was used to test among places or regionsif the places or regions themselves growingat significantly are different forthe significance industry of employment perrates. The comparison can be made meaningful, centages and normalized employment growth rates however,if the measuresof industry growth can among the four regionsand the fourplace-size control differences thegrowth for in ratesof places groups.I used two-way analysisof variance,with or regions.In thisstudy used a measurereferred regionand size of place as thetwo nominalscale I to as normalized percent change,whichmeasures variables.The fixedeffects model was used, and an industry's relative thegrowth total thefirst-order to of wereexamined(Neter, growth interactions in employment a place or groupof places. Nor- Wasserman,and Kutner1985; Norusis 1986). In malized percentchange was computedby sub- cases whereinteractions significant, and are size from region effectscannot be interpreted indepentracting percent changein totalemployment thepercent If changein industry employment. an dently. Finally, I employed partial correlation industry grows at the same rate as totalemploy- analysis,controlling the effects place size, for of ment, normalized its growth zero. If an industry to examinetheroleof servicesin regional is growth. grows fasterthantotal employment, normalits ized growth rateis positive.Even thenormalized rates should be interpreted withcaution, Results of StatisticalAnalyses growth sincerelatively highpercentage changescan result fromsmall absolute gains, particularly small in In theanalysispresented examine below, I first nonmetropolitan counties. thespatialstructure serviceindustries 1958, of in The index of urbanization measuresthe extent thestudy's initial review changes the year,andthen to which an industry's is employment concen- that occurred from1958 to 1977. An examination in trated large or small places relativeto the dis- of the 1977 structure serviceindustries of follows. tribution totalemployment of (Duncan 1959). To Lastly, I discuss the resultsof the correlation calculatetheindex,theplaces in thesamplewere analysis. intosevenpopulation size groupsranging grouped fromless than25,000 to greater than3 million. The formula the indexis: for The Spatial Structureof Services in 1958 in In 1958 therewere significant differences whereXj is thecumulative of as proportion employ- service employment a share of total employmentin industry through jth size group,Y1 mentamongbothregionsand places of different X the in is thecumulative of of proportion employment all size. The highestconcentrations service emindustries were in metropolitan through thejthsize group,and thesum- ployment places and in the mationis over all size groups.The divisor(I-P), South and the West. Among individualservice P where is industry shareoftotalemployment, industries, X's in differences employment sharesacross eliminates in and size groupsweregenerally bias thatresults from differences in- regions for greater size. An index value of zero indicatesan producer servicesthanforconsumer services(see dustry is industry distributed among places of different Tables 1 and 2). size in exactlythe same manneras is total emA numberof producerservice industries, inIndustries in concentrated large places cludingbusinessservices(SIC 73), legal services, ployrnent. have positiveindexvalues, withthemagnitude of miscellaneousservices,3banking,insuranceand the index indicating degreeof concentration, real estate,were significantly the more concentrated while negativeindexvalues signify con- in largeplaces thanin smallplaces. This was parindustry in centration small places. trueforhighly ticularly specialized servicessuch (1XjYj 1 - 1Xj 1Yj)100/(1-P) (1)

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Table 2. Index of Urbanization 1958 7.4 4.4 14.3 - 8.9 1.4 15.2 22.6 23.8 -2.5 4.5 - 1.0 10.3 1.9 11.7 9.1 9.5 1.6 0.5 2.2 -3.3 8.1 - 12.6 - 16.5 -0.4 -1.2 5.8 1967 8.2 5.2 11.9 -12.3 0.4 12.2 23.6 15.2 -1.1 8.9 - 0.5 10.4 0.5 7.9 7.6 9.3 0.5 4.4 3.8 -2.7 8.8 -9.4 -1.7 0.6 2.9 1977 11.1 6.2 7.2 -16.6 -2.6 9.7 23.6 11.9 -1.6 8.4 1.6 10.4 - 1.8 5.2 3.1 9.8 -3.8 3.2 2.4 -4.1 8.5 -9.7 1.3

Services Banking(60) Insurance(63,64) Real estate(65) Hotels, etc. (70) Personal(72) Business (73) Advertising (731) Management, consulting, and public relations (737,7392) Auto and repair(75,76) Amusement and recreation (78,79) Health (80) Legal (81) Membership organizations (86) Miscellaneous(89) Engineering architectural and (891) Accounting, etc. (893) Eating& drinking places (58) communications utilities and Transportation, Wholesale trade Retail trade Finance, Insurance,real estate Government: federal Government: state Government: local Total services Manufacturing
1979d, 1979e, 1980a, 1981; U.S. Civil Service Commission1958, 1967, 1976.

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1.3 3.2

Sources: U.S. Bureau theCensus1958,1960,1961a,1961b,1968,1969,1970,1971,1972,1978,1979a,1979b,1979c, of

size. Forexample, thestudy's for sampleofplaces, regional employment growthranged from20.5 percentin the Northeast 92.0 percentin the to South, and employment growthby size group rangedfrom33.5 percent small nonmetropoliin tan places to 70.7 percentin small metropolitan places. Throughout period, populationgrew the in strongly the South and West and modestly in theNortheast Northcentral and with regions, growth in thelatter in two regionsslowingnoticeably the 1967-77 period. The most significant change in population growth between1967 patterns that was and 1977 nonmetropolitan places grewmorerapidly than did metropolitan places, a markedreversalof thepatterns previous of decades (Morrill 1978). During this period, in all regionsexcept the South, large metropolitan places experienced muchslowerpopulation growth thandid smaller Patternsof Change Between 1958 and 1977 places. As shownin Table 3, during period 1958by The period 1958-77 was characterized a 53 the in and few industries percent growth U.S. employment by sig- 67 relatively exhibitedsignificant in of growth differences normalized nificant differences thedistribution that in growth reamongeither size. The number of amongindustries, regions,and places of different gions or places of different

as advertising, engineering architectural and services, and accountingservices. In general,these highlyurbanizedservicesexhibitedtheirhighest in followed regional concentrations theNortheast, region,and lastly by the West, the Northcentral of the South. The South's relativeshortage these to low services primarily was attributabletheir levels in SMSAs. of concentration large southern Among the otherproducerservices,transporutilitiesand wholesale tation,communications, in concentrated largeplaces trade weremorehighly than in small places but showed littlevariation servicesexhibited amongregions.Most consumer uniform concentrations amongbothregions fairly size and places of different in 1958.

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362

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industries achieving statisticalsignificancewas other regions comparable growth rangedfrom130 greater the 1967-77 period,indicating for thatit to 180percent. business For services (SIC 73), manwas a timeof greater spatial variation service agement, in and consulting publicrelations services, employment growth(see Table 4). Differences andlegalservices, Westalso exhibited rates the high among places of different were more likely of growth. finance, size For insurance, real estate, and to be significant thanwere differences amongre- differences regionalgrowth in rateswere smaller gions. Few interaction effectswere significant, thantheywereforbusinessand professional services, andpatterns in weremore diverse. Between1967 particularly the 1958-67 period. Total serviceemployment exhibited fairly uni- and 1977 banking grewmoststrongly theNorthin in formnormalized growth size of place and re- east, insurance theNorthcentral by and real region, gionduring study the period,although growth rates estatein thetwofastest the growing regions, South were substantially higher between1967 and 1977 and West. thantheywerefrom1958 to 1967. Manufacturing Figure 2, which shows the growthpattern of an employment grewmoreslowlythandid totalem- businessservices(SIC 73) from integrated reployment, particularly the 1967-77 period.Al- gional-hierarchical in perspective, helps to illustrate of though regional differencesin manufacturing the spatial characteristics growth business for servicesduring study the growth werenotstatistically significant, there were and professional period. in significant differences among places of different Between1958 and 1967, growth businessservfiltered downtheurbanhi- ices (SIC 73) was greatestin the South and in size, as manufacturing small metropolitan places. Among the different erarchy. however, growth patterns differed signifBusinessand professional servicesand finance, regions, amongplaces of different size. The South insurance, realestate and experienced strong growth icantly more exhibited a centralizing pattern,with growth duringthe studyperiod, withemployment in thandoublingin businessservices(SIC 73), legal strongest largemetropolitan places and weakest services.A in large nonmetropolitan places. Growthin the services,banking,and miscellaneous in numberof individualindustries these sectors otherregionswas focused in small metropolitan grewmostrapidly small metropolitan non- or large nonmetropolitan in and places, withthe Northmetropolitan places (see Tables 3 and 4). In the centralregion showingthe strongest decentrali1958-67 period,the finance,insurance, and real zationtendencies. the 1967-77period, South In the estate grouping,accountingservices, and engi- continued the high-growth as region,withstrong in and servicesexperienced neering architectural sig- normalizedgrowth occurring all size groups. nificant and differences normalized in growth among The Northeast Northcentral regionscontinued their in size. For each of these indus- to experience places of different strongest growth small metwas greatest nonmet- ropolitanand large nonmetropolitan in tries,normalized growth places. The a ropolitan places. During the 1967-77 period, West exhibited pattern fromthe verydifferent withgrowth in miscellaneous other regions, strongest small metbanking,real estate, advertising, and real es- ropolitanplaces between 1958 and 1967 and in services,and the finance,insurance, tategroupdemonstrated strongest their normalized largemetropolitan places between1967 and 1977. in some communications and utilities, Transportation, growth nonmetropolitan places. Although such wholesaletrade, and mostconsumer businessand professional serviceindustries, serviceindusin as businessservices(SIC 73), did notregister growth sig- triesshowed littlevariation normalized size ratesamongregions size groups.Whatis more and nificant differences amongplaces of different thanthe spatialcharacteristics conen- significant of duringthe 1967-77 periodand one industry, was in service and gineering architectural services,exhibited sig- sumer employment growth a reversal fromnegativein nificant the centralization tendencies, general pattern normalized employment growth in was one of strongest normalized growth non- the 1958-67 periodto positivein the 1967-77 peof riodfora number consumer metropolitan places. services,including in and profes- retail autoandrepair amusement and trade, Regionally, growth mostbusiness services, in and sional serviceindustries greatest theSouth, recreation was services, hotels (see Tables 3 and4). in partbecause of significant employment gains in theSouth'slargemetropolitan places (see Tables 3 Spatial Structureof Services in 1977 and4). Forexample,in largesouthern SMSAs norAs a result thegrowth occurred malizedgrowth businessservices(SIC 73) was of that for between 410 percent overthe 19-year of study period,whilein 1958 and 1977, the spatial structure services

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in observedin 1977 differed a number respects services, and real estate were less urbanizedin of from that 1958. Businessand professional of serv- 1977 thantheyhad been in 1958 (see Table 2). ices and finance,insurance, and real estatewere In general,businessand professional servicesand in significantly concentrated largeplaces than finance, more insurance, real estatebecame less urand in small places in 1977, as had been the case in banizedduring study the in period,resulting a de1958. However, a numberof individualindus- clinein thedisparity between largeand smallplaces in of tries,including business services(SIC 73), mis- in the percentage employment these indusa of cellaneousservices,engineering architectural tries.Nevertheless, number individual and indus-

U.S. Service Sector

365

tries-including advertising, banking, management, concentration among regionsfora variety inof consulting publicrelations and including businessservices(SIC 73), inservices,and legal dustries, in services-remainedhighly urbanized 1977 (see surance, real estate, legal services, and Tables 2 and 5). miscellaneous services. producerservices (transportaThe regional distribution services of was strongly The remaining and and influenced the growth businessand profes- tion,communications utilities, wholesale by of patterns 1977 thatwere quite in sional services and finance,insurance,and real trade)exhibited to in estate in the South and by the development of similar thosein 1958-higher concentrations unisome of theSouth's largeSMSAs intomajorser- largeplaces thansmall places and relatively among regions (see Table 5). vice centers. a result thesechanges,by 1977 formdistribution As of serviceswerefairly disuniformly the South's service structure had become more Most consumer tributed and places ofdifferent amongregions size similar thatof theother to regions.The Northeast remained regionwith highest the the sharesof em- in 1977, as had been true in 1958. Exceptions in and fi- included hotels and amusementand recreation ployment manybusiness,professional nancial services, including banking, business services. services(SIC 73), advertising legal services and (see Fig. 3). The Northcentral regionreplacedthe Southas theregionleastwell endowedwithmany RelationshipsBetween Services and Regional of these services. Between 1958 and 1977, re- Economic Growth of gional differences the concentration busiin further characteristics In order investigate to the ness, professional, financial and services declined, and the growthpatterns as shownby the substantial declinesin industrial of service employment relationship services to economic growth,I of a conducted seriesof partialcorrelation analyses. In samples containing places of widelydifferent 9.0 size, place size oftenhas a significant influence that exist between other upon the relationships variables.Consequently, place size was controlled forin all partial correlation wereconanalysesthat 8.0 ducted. Two types of variables were included in the partialcorrelation analysis,change variablesand structure variables. The change variables mea7.0 suredpercent or changein population employment overtheperiods1958-67 and 1967-77. The strucof turevariableswerecalculatedas thepercentage in totalemployment an industry groupof inor 6.0 timeperiods. at of dustries thebeginning thestudy As shownin Table 6, relationships amongmost measures changewerebothpositiveand strong. of the Additionally, relationships changedlittlebe5.0tweenthe two timeperiods,and therewas little variation and size-of-place amongregions groups. coefficients manufor In general,the correlation facturing changewerenotas highas thoseforthe 4.0serviceindustry groupings. beDuring the period 1958-67, relationships tweentotalemployment change and the employment structurevariables (those measuring an 3.0 in shareof totalemployment 1958) were industry's 1967 1977 1958 weak to moderate.For the total sample, percent Figure 3. Percentageof total employment engaged in in totalservicesand percent employed businessservices(SIC 73), legal services,and employed banking, varserviceswere theonly structure miscellaneousservices by region in 1958, 1967, and in consumer withemiables thatwere significantly correlated 1977.

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368

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ployment change. Duringthe 1967-77 period,the growing similarratesin bothproducer at service relationships betweenthe structure variablesand centersand places not specializingin producer total employment change weresubstantially stronger services. The relationship than in 1958-67. For the total sample, all four betweenchange in producer structure variables exhibitedsignificant correla- servicesand percent employedin manufacturing tions,and,exceptformanufacturing, werepos- was negativeand significant the totalsample all for itive. Thus, over the studyperiod employment in bothtimeperiods, indicating producer that servgrowthbecame increasingly focused in service ices growth nottaking was place in manufacturing centersat the expense of manufacturing centers. centers therefore declining and that manufacturing The increase in the strength the relationship centers of werenotable to shift their economicbase between totalemployment changeandpercent em- away frommanufacturing producerservices. to ployedin producer serviceswas particularly strik- This was particularly for large metropolitan true ing. places, whichexhibited strongest the negative corbetweenthetwo variables. Among the size-of-placegroups,relationships relations betweenthe structure variablesand employment growth generally mirrored thoseof thetotalsamde- Discussion and Conclusion ple. There were, however,some interesting viations percent for employed producer in services and in manufacturing. From 1958 to 1967, these Between 1958 and 1977, therewas significant withtotal changein thespatialdistribution serviceactivof two sectors had a significant correlation in employment growth onlyone size category, large ities. The majorfocus of changewas in business services and in finance,insurmetropolitan places. The producerservicescor- and professional relationwas positiveand thatfor manufacturing ance, and real estate. As a resultof the changes was negative,indicating thatforlarge metropoli- thattook place, servicesbecame somewhatmore tanplaces growth The servicestructures was focusedin producer service evenlydistributed spatially. centers.By of different levels of the urbanhierarchy centersrather thanin manufacturing became 1967-77, thispattern had spread down the hier- morealike between1958 and 1977 as a resultof archy, with bothsmallmetropolitan largenon- the downfiltering a numberof service indusand of metropolitan places exhibiting shiftin growth tries.Indicesof industrial a concentration amongreaway frommanufacturing centersand to places gionssuggest that servicestructures thefour the of services. regionsalso became more similarto each other specializingin producer For the structure variables,regionaldeviations during studyperiod. the Withrespectto changes in the distribution from werelimited. Interof national growth patterns em- servicesthroughout urbanhierarchy, number estingly, the Northcentral for regionpercent the a was in industries thebusinessand profesployed in manufacturing strongly positively of individual with total employment correlated growthin the sional services and finance,insurance,and real was exhibited 1958-67 period. The Northcentral the only estategroupings downfiltersignificant was focusedin manufac- ing duringthe studyperiod. Normalizedgrowth regionforwhichgrowth had signif- for many of these downfiltering industries was centers.In 1967-77, all regions turing in icant correlations between total positive employment greatest smallmetropolitan places between1958 and the percentemployedin the various and 1967 and greatestin large nonmetropolitan growth in a servicecategories. Although 1967-77 totalem- places between1967 and 1977, reflecting movecorrelated with mentdowntheurbanhierarchy overtime.Not all was negatively ployment growth in in howpercent employedin manufacturing all fourre- industries these groupings downfiltered, was the correlation ever. Some experiencedlittlechange in urbanigions, only in the Northeast and its increased concentration significant. zation, one,banking, The correlation between change in producer in largeplaces. and percentemployed in Our knowledgeof the role of services in reservices employment serv- gional development servicesindicates whether intosome of providesinsight producer producer or ices were becomingmore concentrated more the causes of the observedchanges. The develdispersedduringthe studyperiod. The fact that opmentof the producerservice base of smaller mostof thecorrelation coefficients betweenthese centershas no doubt resultedfromboth import in and in two variables were not significant suggeststhat substitution a growth service exports many duringthe studyperiod producerservices were mediumand small-sizedurbancenters.Withthe

U.S. Service Sector

369

had grown accustomed purchasing to servicesand services they in growth demandformanyproducer technology that in urbancenters.There is evidence of an emertheadvancesintelecommunications services it have occurred, is quite feasibleforlower-order gence in smallercentersof urban-type unavailablethere,including centersto specialize in the provisionand export thatwere previously stores, specializedmedicalservservices.For example, in classifying largedepartment of producer ("More retail shops,and restaurants areas accordingto theirem- ices, specialty U.S. metropolitan and Archer White(1985) Medical Specialists are SettingUp Practice..." specialization, ployment of foundthata number small and medium-sized 1980; "With ManyCitiesFull of Stores..." 1981; insurance, and "Born Again..." 1983). centers werespecializedin finance, of Change in the regionaldistribution service real estate. between activities was also focusedin businessand profesMost of theservicesthatdecentralized insurance, real and 1958 and 1977 also experiencedstrongoverall sional servicesand in finance, emhad thatdemandforthemgrewat estate.In 1958 theNortheast thehighest suggesting growth, in sharesformostof theindustries these in This growth demand ployment all levels of thehierarchy. this for could be expectedto cause thresholds specific groupings; regionwas followedby theWest, By and to functions be reachedat levels of the hierarchy Northcentral, South, respectively. 1977, combeen inadequateto however,the Southhad developeda strong wheredemandhad previously had of supportsuch services. The resultwould be the ponent theseservices,theNorthcentral beof movement these servicesdown the urbanhi- come the least well-endowedregion, and the remained mostwell endowed. Perthe to erarchy smallercenters.Both Stanbacket al. Northeast of (1981) and Pred (1977) have foundevidencethat haps the mostnotablefeature regionalservice the during studyperiodwas therapiddehave been emerging growth servicefunctions high-order services of velopment business and professional at lowerlevels of theurbanhierarchy. places. A numberof otherfactorshave been instru- in theSouth's largemetropolitan thatoccurredin the The rapid servicegrowth of mental in the decentralization business and by the and South during studyperiodwas stimulated servicesand finance,insurance, professional manufacturing growth, growth, population of real estate.The decentralization manufacturing strong gains in per capita inthe whichoccurred during 1958- and greater-than-average primarily activity, of the 67 period, musthave stimulated demandfor come. The emergence theSouth's largeservice in substiis reflected import centers. The centers undoubtedly services some lower-order in producer from for purchased previously adoption by many firmsof regional-divisional tution manyservices of and of structures thedownfiltering some corporate outsideof the regionand in the development of the spurred development producer the service exportbase of some of the South's headquarters service centers(Stan- major service centers.During the studyperiod, services in regional-level service withthenation'sdominant have shifted theNortheast, back et al. 1981). Many large firms its in center,New York, maintained positionas the to from larger smallercenters servicefunctions mosthighly specializedinbusiness,profesorderto take advantageof lowercosts, the avail- region abilityof skilled labor, and the desire of many sional, and financialservices. The Northcentral in its (Hard- regionhad difficulty expanding base of proemployeesto live in smallercommunities base ducerservicesas itsmanufacturing declined. ing 1981; Wheelock 1979). associated The serviceindustries moststrongly were afConsumer services growthpatterns to of fectedby the shift populationgrowth non- with economic growthwere producerservices, businessand professional servicesand places that took place duringthe particularly metropolitan and insurance, real estate.These services populationgrowthwas finance, 1970s. Nonmetropolitan accompaniedby gains in per capita income. Pop- generallyexhibitedtheirmost rapid normalized size of place groups in growing shouldhave increased growth thefastest ulationand incomegrowth places in 1958-67 and the the demand for consumerservices in small and (thesmallmetropolitan places in 1967-77) and in centerslocated in areas experienc- large nonmetropolitan medium-sized region,the South. Theirnorgrowing resulting thefastest growth, population ing nonmetropolitan tendedto be weakestin the more in the attainment thresholds some services malizedgrowth for of regionsand size groups. the in thosecenters. Additionally, people who mi- slowlygrowing areas Accordingto the resultsof the partialcorrelato from metropolitan nonmetropolitan grated growthin both proin could be expectedto generate nonmetropolitan tion analyses, employment places an increase in the demand for consumer ducer and consumerservices was more highly

370

Kim

correlated withtotalemployment growth thanwas in theWest and particularly theSouth,in conin manufacturing employment growth. Additionally, cert with other the attributes these of regions, should between 1967 and 1977 growthwas focused in help theseregionsto experiencestrong economic places specializingin producer servicesat theex- growth thefuture. Northcentral in The regionmay penseofplaces specializing manufacturing. in The have thepoorestprospects growth, least in for at concentration growth places specializingin theshort of in term, givenits relatively concentralow producer servicessuggeststhatproducer services tionsof business,professional, financial and servhelpedto createand attract new business,includ- ices and its large employment shares in slowly ing manufacturing, also to enhancethe pro- growingand decliningmanufacturing and industries. ductivity competitiveness local firms. and of Import Producer services,however, represents potential a of area fortheNorthcentral substitution servicesand the growth service growth of region. exports were probably important thegrowth in of The results thisstudy of indicate thatlocal ecoplaces at all levels oftheurbanhierarchy. many nomicdevelopment In policiesshouldnotbe focused smallerplaces, it is likelythatconsumer services exclusively manufacturing, is often case. on as the have also contributed growth, to boththrough their Such policiesshouldalso encourageservicesector role in enhancing attractiveness a place to development,particularly business, profesthe of in migrants through and their exportto tourists. sional, and financialservicesand in some cases To summarize, majorfocusof changein the in tourist the oriented services.Policies to foster serspatialdistribution serviceswas in businessand vice growth of could benefit only large SMSAs not professional servicesand finance,insurance, and butalso manysmallSMSAs and nonmetropolitan realestate, from particularly 1967 to 1977. Growth places as well. in these industries in was not concentrated large metropolitan centersbut occurredat all levels of the urban hierarchy. Growthat the middle and Acknowledgments lower levels of the hierarchy was so greatthat serviceemployment decentralized the during study I would like to thank WilliamB. Beyers,RichardS. Jr., the the period.Regionally, Southexperienced most Conway, Jr., James W. Harrington, Richard L. for in services Morrill,and two anonymousreferees theirhelpful rapidgrowth businessand professional comments earlierdrafts thispaper. on of and finance,insurance, and real estate,resulting in the emergenceof some of the South's largest cities as major servicecenters.The Northcentral the The find- Notes regionexperienced weakestgrowth. for that ings also providesupport the hypothesis 1. Improvements communications in technology, which servicesplay a significant role in the process of should reduce the cost and enhance the quality of regionaleconomicgrowth. communications, could influence hierarchical the arrangement functions are dependent of that uponcomand The results suggestthatsmall metropolitan munications. However, the impact of such areas to nonmetropolitan will continue experience improvements upon the urbanhierarchy not obis The economicand population significant growth. vious. Communicationsimprovements could enof and development thebusiness,professional, fiand hancetheprofitability, efficiency, competitiveness of nancial servicestructures places at the middle of some establishments located in small places. On theother hand,they could also enableestablishments and lower levels of the urbanhierarchy thathas located in largerplaces to serve distantcustomers alreadytakenplace-along withthe otherattracin moreeasily and cheaply. Improvements commutions of smallerplaces, includingthe expressed nicationshave undoubtedly botheffects, had faciliof preferences Americans to reside in smaller of tatingthe centralization some functions and the of decentralization others. communities (Zuiches 1981)-portends continued in and growth smallmetropolitan nonmetropolitan 2. Data were collectedfrommorethanone source bewas not available cause the necessaryinformation in few yearsof the places. Nevertheless, thefirst froma single source. Care was takento insurethat ratein nonmetropol1980s thepopulation growth the fora specificindustry same data sourcewas used itanplaces fell below thatof metropolitan places This prevented to obtain data for all observations. themostseveretypeof problems that result can from in (Garnick 1985). The differences metropolitan different sources.Additionally, bemixing datafrom and nonmetropolitan rateswerenotgreat, growth cause thefocusof theanalysisis on relative changes however,and the early 1980s includedthe most I over timeand relativeshifts amongindustries, felt severerecessionsince theGreatDepression. thatusingmorethanone data sourcedid notunderof minethe validity the studyresults. The servicestructure that development occurred

U.S. Service Sector

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and regionaleconomicdevelopment. Washington, 3. Miscellaneous services, SIC 89, is dominatedby D.C.: U.S. Government Printing Office. architecprofessional services,such as engineering, tural,accountingand bookkeepingservices. In the Levin, Charles L. 1985. Regional development analyremainder thispaper, the termbusinessservices of sis and policy.Journal RegionalScience25:569of to businessand profesalone refers SIC 73. The term 92. to to sional servicesis used morebroadly refer busi- Lynch, Allen A. 1973. Environment labor quality and ness services(SIC 73), legal services(SIC 81), and take top priority site selection.IndustrialDein miscellaneousservices(SIC 89). velopment 142(2): 13-15. Marquand, Judith. 1979. The service sectorand regionalpolicyintheUnited Kingdom. London:Centre forEnvironmental Studies. References Marshall, J.N. 1985. Servicesin a postindustrial econand omy. Environmental PlanningA 17:1155-67. factorsin plant loca- Menchik, Mark David 1980. 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