Business Services, Productivity, and Wages: Metropolitan and Nonmetropolitan Michigan Counties, 1977–1997

Abstract

This article investigates the growth of business services (SIC73) in Michigan and models the relationship between the industry and local economic conditions in metropolitan and nonmetropolitan counties. The research makes four conclusions. First, SIC73 measures explain variance in manufacturing productivity. Second, SIC73 indicators explain variation in manufacturing and overall wages. Third, these relationships vary between metropolitan and nonmetropolitan counties. Despite growth in rural regions, SIC73 indicators more effectively predict wages and productivity in metropolitan counties. Hence, the localized benefits associated with SIC73 industries are more strongly associated with metropolitan economies. Fourth, the interdependencies that have developed between SIC73 industries and the manufacturing sector decrease over time in both metropolitan and nonmetropolitan contexts. The article concludes with suggestions for future research.

Human Capital and Economic Activity in Urban America

“…Collectively, the knowledge areas of administration and management, economics and accounting, personnel and human resources, customer and personal service, clerical, and law and government contribute to the provision of producer services. Similar to our results, Hansen (1990) and Gatrell (2002) found that producer services enhance regional productivity and wages. An explanation for these findings is that producer services allow for a greater division of labor (Hansen 1990), and that service providers use their "creativity" and "abilities to undertake research and development" to deliver "unstandardized" work products that provide value to their clients and the overall economy (Lindahl and Beyers 1999, p. 18).…”

Knowledge and Earnings

“…As a general rule, subjects with external returns contribute to the provision of producer services (e.g., administration and management, economics and accounting, and law and government) and information technology (e.g., telecommunications, computers and electronics, and engineering and technology). Similar to our results, Hansen (1990) and Gatrell (2002) found that producer services increase regional productivity and wages. Likewise, Oliner and Sichel (2000) and Nordhaus (2002) found that information technology enhanced U.S. economic growth during the late 1990s.…”

Impact of Retirement Populations on Local Jobs and Wages

“…Control variables for education levels, level of manufacturing employment, and urban areas were incorporated into the analysis. Each of these factors has been shown to affect job and wage growth: As education levels increase, wages tend to increase and high-level production jobs also increase (Drennan, 2005;Gatrell, 2002); as the employment base shifts to services from manufacturing, the number of jobs increases and wages decrease (Duke et al, 2006;Gatrell, 2002); and wages and job offerings tend to be higher in urban rather than rural areas (Drennan, 2005;Gatrell, 2002). Education levels (EdAtt) were measured as the percentage of county population aged 25 years and older that had obtained at least a bachelor's degree.…”