Prepared for the North American meetings of the Regional Science Association International, Buffalo NY, November 1997.  This paper sketches a broad and deep research agenda;  I welcome comments and suggestions : jwh@u.washington.edu
I thank Jeffrey Garneau, University of Washington, for research assistance.
 

ABSTRACT.  Many of our conceptualizations of the role of producer services and their gains in employment and output turn centrally on information, in an economy that seems increasingly focused on rapid generation and use of information. This is unfortunate for regional science in a theoretical sense, because information has proven very difficult to integrate into the economic and the spatial models that power much of our regional analysis. Much of our concern for producer services activity stems from the sustained increase in this broad sector as a proportion of regional employment. Yet we know very little about the process by which producer services activity turns labor (usually its most important and expensive factor of production) into useful products. Information and labor have many points of intersection: it is producer services’ dependence on information that structures their dualistic labor demand; workers provide much of the tacit knowledge upon which producer services activities operate; the impact of producer services activity on local employment is mediated by the information-intensive job search process; organizational changes and advances in information and communication technology have increased all firms’ (not only producer services providers’) ability to make use of information, with substantial impact on the labor processes and the location of the transformation of labor to product. This paper suggests that by attending to these two under-theorized and under-researched aspects of the operation of producer services activities, regional scientists can improve our understanding of producer services and improve the intellectual and practical power of regional science.

PRODUCER-SERVICE STUDY IN REGIONAL SCIENCE

Is there an identifiable and distinguishable producer services sector? Yes and no. Yes, regional scientists and others have relied on and even helped develop sectoral categorizations of economic activity that maintain a separate set of sectors providing non-material inputs to other production activities. Yes, managers who respond to government and academic surveys can identify that their establishments fall into such categories. Yes, there are some input-output commonalities in these establishments, especially when they are grouped into more distinct (sub)sectors. However, the prevalence of analogous activities within establishments other than private producer services makes an establishment-based categorization of producer services sectors less satisfying than occupation- or function-based categorizations. The material content of some producer services outputs (from information-recording media to, more problematically, maintained or delivered equipment) also confuses our sectoral categorizations.

Despite the shortcomings of attempts to divide economic activities into discrete industrial sectors, we do so because sectors vary in their overall fortunes, employment trends, employment outcomes (wages, job tenure, demand for educational attainment), and other forms of regional impact. Firms within sectors, and non-corporate activities in a region, also vary in their fortunes, trends, and impact. However, regional science has focused on corporate actors in our economies, and many of our methods of regional analysis use sectoral categories as their start. Therefore, any set of sectors that are both (a) growing and (b) definitionally connected to other sectors, as are producer services, deserve special attention by students of the economy.

The study of producer services has become a growth industry of sorts, boasting journals, conferences, new Ph.D.s, intellectual and even practical successes. Newly developed national and regional economic development policies generally recognize the importance of producer services in employment growth and economic productivity. International trade policy and negotiation increasingly hinge on intangibles such as traded services, entry barriers for domestic markets for nontraded services, and protection of intellectual property that underlies so much material and service production and competition.

There is now a wealth of empirical studies focused on producer services growth, on specific producer services sectors, on regional and interregional dynamics of producer services employment, on marketing and strategic change in producer services firms, and on the importance (or at least correlation) of producer services linkages to product, process, and marketing innovation among small- to medium-sized firms. In all except the last of these types of empirical study, producer services as a sector or as individual sectors are the subject of analysis. Empirical and theoretical progress has been slower in several important aspects of producer services study. We still have difficulty conceptualizing the role of services in production complexes, modeling service-activity location, and understanding the relationship between proximity and marketing in producer services. These are all topics for which a conceptualization of the links and contexts of producer services is crucial for progress.

This paper suggests two processes that have been inadequately developed in our writing about and modeling producer services: information generation and use, and the labor processes entailed in producer services production. Empirical work and modeling that explicitly link these processes to producer services may allow progress in the more slowly moving aspects of producer services study. These processes are key to understanding producer services dynamics because they form important linkages between the producer services and the rest of the economy, including economic change. In my opinion, this is precisely the point at which much regional-science work on producer services is lacking — in the conceptualization and modeling of these linkages.

It is not coincidental that these processes have not received much attention by regional scientists. The first process, of information flows and (regional) economic development, has been explored only recently, with the slowness reflecting the difficulty of measuring and modeling information. Progress has been made, however, and the time is ripe to use this progress in linking producer services activity to the broader economy. The second process, of human resources as sources of economic well being, has not been a major focus of regional science, which has been focused on corporate actors. In the case of each process, however, greater attention by regional scientists in general and producer services researchers in particular should enrich these fields of study and bring them in closer connection to other students of regional development.

UNDERSTANDING AND MODELING THE INFORMATION CONTENT OF PRODUCER-SERVICE PRODUCTION AND DISTRIBUTION

Much of the source of our difficulty and fascination with modeling producer-service activities and their relationship with the rest of the economy is the importance of information in the production, marketing, and use of such services.

Information basis of producer services

Romanoff and Levine [1993] provided some conceptual distinctions that are useful to a regional science of information-based producer services. The first distinction is between stocks of knowledge and flows of information. Knowledge is not depleted by its use (by information flows), but rather by its obsolescence. Thus, economic accounting for knowledge and its expenditures should depreciate it as a capital stock.

The second distinction is between "private" and "public" information: the former being bought and sold (but eventually entering the public domain both practically and legally); the latter being explicitly considered a public good. Distinguishing among types of information allows modeling the various sources and routes of transmission of information. Private information is transmitted from the stock of knowledge that firms generate internally, that employees and contractors get through specialized training, or that producer-service (or other) entities provide for a charge. Private information flows carry monetary compensation, and are more easily modeled via a market mechanism: thus, I will also call this "traded" information. Public information flows through direct experience, trade dissemination, and social networks, and lends itself to network and stochastic modeling. Public information is transmitted, not freely, but via networks that do not require quid pro quo payments: I will call this "non-traded" information. For producer services providers (whether in-house, corporate, or individual), relevant information of either sort has multiple, complementary components: external (client data, software, industrial intelligence) and embodied (training, experience).

The third distinction relies on the sector-specific mix of materials and information produced by establishments. This distinction is most helpful in distinguishing among service sectors, broadly construed. Distributive sectors deliver material goods from original production to final use. Servicing sectors assist, maintain, or repair materials, people, or the physical environment. Informative sectors collect, process, and transmit information, in the forms of education, finance, and libraries. Research activities are the reflective production of knowledge, in separate sectors such as research and professional engineering as well as through the deliberate knowledge acquisition in other sectors.

These distinctions suggest several lines of research into the location, linkages, and impact of informative producer services activities. First, the supply of information to these activities influences their success and effectiveness. Second, the internal production process or value added influences the costs borne by, utility of, and prices charged by these activities. Third, the routes by which information can be transferred to clients determine the market linkages of activities, given their location (or constrain their locations, given their market linkages). The first and third concerns lead to the study of networks; the second concern leads to the study of labor processes.

Economics of knowledge and information

Macroeconomic models have long grappled with the creation and use of knowledge. If technical knowledge determines production functions and their change and if market information determines the functioning of markets, imperfections in the dissemination of knowledge and information affect every aspect of economic competition. If the change in technical knowledge influences the production return to inputs, then modeling the change in technical knowledge and its transmission across actors, sectors, and nations or regions is the key to modeling economic growth.

Technical knowledge and aggregate production. Solow’s [1956] assessment of the extent to which the residual factor of technical change affected returns to the deployment of capital and labor set off many subsequent investigations of the nature of this residual and its causes. In an attempt to endogenize technical change, Arrow [1962] postulated that: (1) there are (not necessarily increasing) returns to knowledge; (2) the source of increased knowledge was the cumulative, aggregate investment in an industry (so that knowledge could increase no faster than that investment); and (3) the returns to knowledge are external to firms, but rather increase overall productivity. The last postulate prevents the resultant model from generating monopolistic structures that would negatively affect welfare and subsequent investment. In modeling this dynamically, the dynamic returns to scale are countered by a labor supply that is constant or growing at a fixed rate that constrains the time-specific returns to additional capital investment.

Romer [1986] generalized Arrow’s treatment of the sources of technical knowledge, by providing an explicit function for the production of new knowledge by application of capital and labor inputs, and making existing knowledge an argument in the aggregate production function. His primary postulates were: (1) there are increasing returns in the use of knowledge inputs in production; (2) increased knowledge is produced directly through the allocation of inputs, but that there are diminishing returns to the allocation of resources to knowledge production; and (3) some portion of the returns to new knowledge cannot be appropriated by the actors that invest in its production. The interpretation of these stylized facts is flexible. "Knowledge" can be interpreted as disembodied, embodied in capital inputs, in labor inputs, or as all three (see Lucas [1988]). The externalities of knowledge production, of special interest to regional science, can be partially localized or not. The resultant model allowed for endogenous modeling of knowledge creation, allowed knowledge inputs to serve as a fixed cost in production of goods and services (i.e, the quantity of output is not a function of the quantity of information), allowed unconstrained increases in per capita output, and maintained a competitive equilibrium (via the decreasing returns to allocating resources to knowledge creation and via the inability of actors to appropriate all the returns from increased knowledge). The model also generates welfare implications based on the likely private under-investment in new knowledge. Romer thus explained persistent or increasing inter-locational disparities in growth rates not by differences in the knowledge available but by differences in cumulative investment in knowledge inputs (disembodied or embodied). Romer did not allow locational stickiness in the externalities of knowledge creation, but this theme continues in the literature, as we shall see.

Market information. The availability of price and quality information is central to economic modeling of markets. Thus, assumptions concerning information flows have a powerful influence on economic models. Stiglitz [1975] argued that economic theory’s difficulty in handling information undermines the theory’s ability to model any production and consumption, since "the production of goods and information are so intertwined that at attempt to construct a theory of ‘information’ immediately leads to a reconstruction of at least a part of the conventional theory" [28]. He then developed a set of postulates about economic equilibrium when actors engage in screening to uncover information that actors (potential sellers, buyers, employees, or insurees) will not divulge. The postulates suggested that because of the costs of screening, the imperfection of screening, or the difficulty in appropriating the benefits from screening, generally either multiple or no equilibria are obtained. Stiglitz [1985] noted the possibility of multiple-price equilibria when products (or workers) are heterogeneous and search is expensive. Stiglitz did not allow for the possibility of directly observing the characteristics of potential sellers, buyers, etc. in the course of other activity, nor of using personal or other contacts to evaluate characteristics. These sources of information influence a great deal of behavior, such as agglomeration and selection from among network connections, in circumstances where withheld information is important.

Transmission of traded information

How can information flows and inputs be studied, and their impact modeled, empirically? Porat [1975; 1977] operationalized definitions of information capital (relevant equipment purchase and depreciation, and relevant service purchases) and information workers (see especially Porat [1975: 4-37]) to develop estimates of the portion of the economy and its constituent sectors and firms that are devoted to knowledge production and information flow. By allocating seven-digit SIC industries to a traded or "primary" information sector (industries engaged in the generation, communication, or manipulation of information, as well as industries engaged in manufacturing information-management equipment and software), Porat estimated that 25 percent of U.S. value-added originated in this sector in 1967. By evaluating the information capital and workers employed in other (private and public) sectors, he estimated that an additional 21 percent of U.S. value-added originated in these "secondary" information activities. The services sectors and employment were allocated to information and non-information categories according to a painstaking assessment of outputs and occupations. The resultant modeling of income is a straightforward Keynesian identity Y = C + I + G + X - M, in which the information and non-information components of each element are separated and their (changing) interactions can be shown [Hepworth 1990]. Space economies (nations or regions) are linked only via their trade in marketed goods and services, including traded information services. Porat’s extensive data manipulation yielded estimates of input-output relationships for the U.S. economy as a whole, but provided no estimates of interregional flows of traded information.

Hepworth and Waterson [1988] and Hepworth [1990: Ch. 4] viewed information inputs as important determinants of regional economic growth. However, unlike traditional capital and labor inputs, information capital and information labor do not have to reside in the region to complement and increase the productivity of region-bound production factors. Intra- and inter-organizational information and data-transfer networks allow transmission and sharing of information resources. Connection to these networks is the determining factor. Once in the network, neither distance nor cost influences the use of information resources. Therefore, traditional accounting for region-specific capital investment, labor skill, and unidirectional interregional movements of capital and labor falls short of the information inputs that may be available to a region.

Transmission of non-traded information

The widely recognized fact of externalities in the generation of knowledge and flow of information is at once the basis of most economic models that recognize information, and very difficult to model explicitly. These externalities are critical to our understanding of regional growth. Below, I review approaches to conceptualizing and modeling such externalities, emphasizing and ending with the fundamental question for regional science — to what extent should these externalities be modeled as functions of proximity, connectivity, or institutions?

Market searching. One important type of generally non-traded information is the awareness and assessment of sources for traded information. The search involved in seeking sources of information is complicated by information asymmetries (unequal information) in assessing and valuing the information to be provided: price comparisons are meaningless in the face of ignorance of relative quality. Search experience, membership in a network of traded-information purchasers, and organized markets for the exchange of information (brokers, trade journals or data bases) decrease search costs. Firms lacking access to experience, networks, or specialized markets find the resultant search costs can be very high, potentially precluding the search for information from private or even public sources. This is a rational response, of course, given an attempt to maintain search costs no greater than the expected returns to searching [Stigler 1961]: in this case, the expected benefit from identifying an optimal mix of price and information quality, and the benefit expected from the information. In addition, large production scale increases the potential benefit of using traded information, if the information, once purchased, can be used freely to improve production or marketing.

Technical knowledge. Marshall’s [1890] widely used distinction between internal and external economies of scale has been the basis for generations of models of spatial concentration of competitive firms. Three of Marshall’s bases for external economies of agglomeration relate explicitly to information costs. The first is a pool specialized labor, attracted to the agglomeration by the reduced search cost for employment, and which attracts production by the reduced search and training costs it represents. Neither the employee nor the firms can appropriate all the returns to this agglomeration. Sequential employment chains provide one manifestation of the second basis: the diffusion of nontraded information about production. The third basis is the reduced costs of search in the market for the commodity produced in the agglomeration. The first two of these sources of external agglomeration exist regardless of the medium of search, given the requirement of a shared physical space for production — job-seekers, employers, employees, and managers must thereby exist in proximity. The importance of the third source of spatial agglomeration is mitigated by the potential for remote market searching and product distribution. The returns to all three externalities will also be shared with "landowners" in the form of higher location rents in the agglomeration, reducing the returns to labor and capital. Without continual additions to the technical knowledge that is diffused (in part) through the proximity of labor and localized exchange, these location rents would ultimately lead to dispersion of production.

One way to test these postulated effects of agglomeration is to compare the growth rates of industrial sectors in regions with varying degrees and types of agglomeration. Glaeser [1994] reported three such tests by different researchers, which related (a) multi-decade employment and wage-level growth rates for specific industries within specific cities to (b) several initial states: (i) the absolute size of the sector in the region (which I will call "region-sector"); (ii) the relative size (or location quotient) of the region-sector; (iii) the ratio of the average employment per establishment in the region-sector to that measure in the U.S.; and (iv) the proportion of the region’s employment in the largest five sectors other than the sector under study, as a measure of the degree of diversification in the regional industrial structure. The theoretical rationale for these measures is that the potential for external economies of technical knowledge ("technological spillovers") should increase with: the size of the specific sector; the competitiveness (especially technological) among firms in the sector or, alternatively, the monopoly power of dominant firms and their consequent ability to appropriate more of the returns to improved technical knowledge; and the sectoral diversity of the region, providing opportunities for greater technical innovation from outside the studied sector. These expectations obviously draw from a contentious literature about the sources of technological innovation. The methods and findings reported were not uniform, but agreed that the growth rates were (i) negatively related to the initial absolute size of the region-sector, (ii) positively related to (initially) relatively small firms in the region-sector, and (iii) positively related to initial sectoral diversity in the region’s economy. In sum: to the extent that employment and wage growth in a region-sector over multiple decades reflect intra-regional, external economies in the sector, these economies are greater among smaller, less concentrated establishments in diversified regional economies.

MacPherson [1997] found that the regional location of small firms (at quite a micro scale) affected their assessment of the cost of searching for information inputs: the assessment was related to the relative agglomeration of producer services establishments in the region. Mackun and MacPherson [1997] found striking differences in the rates of product innovation between electrical-equipment manufacturers who did versus did not make use of external sources of technical expertise, controlling for expenditures for internal R&D and for location in distinctly different types of regional milieux: all three variables significantly affected rates of product innovation, but external linkage bore the largest relationship. The authors noted [665] that "respondents from outside the NYC area were more likely to express ‘serious problems’ in terms of finding, evaluating and/or obtaining suitable innovation inputs than their [metropolitan New York] counterparts." In the framework of this paper, this suggests that external linkages to traded technical information play a measurable role in technical innovation (and presumably in competitive success, given that only successful new products were counted), and that the local availability of a variety of producer services establishments affected the success of the search for and evaluation of technical information.

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Networks, connectivity, and externalities

Geographic proximity is not the only influence on the ease of information transfer or acquisition, and thus for the supply and demand relationships of information-based producer services. Connections must be established between or among the participants in information flow. Traded and nontraded information transfer requires the presence of participants on the same network medium. Traded information transfer requires economic connectivity, the establishment of a market or internalized relationship. Social connectivity, the existence of non-market relationships among participants, eases the validation of information. Understanding the role of producer services in regional development requires understanding the ways in which these activities participate in and facilitate information transfer through networks.

Networks based on contracted transfers. A great deal has been written about the formation and operation of formal economic networks, which are generally seen as the successor to self-contained, vertically integrated corporate structures that maintain arm’s length trade relationships with suppliers and purchases. The forms postulated and observed for networks on this side of "the second industrial divide" [Piore and Sabel 1984] vary along dimensions of organizational form (including the interaction among large and small firms), methods of labor and supply management, and the specifics of cultural-historical origins [Castells 1996: 152-95]. Organizational forms include the central coordinating corporation with closely-aligned licensees and subcontractors, networks of smaller firms engaged in a variety of supply relationships and cooperative marketing arrangements, and project-specific "strategic alliances" among large firms. Which form is taken by a production activity depends on: fixed-capital requirements; technological, capital, marketing and other barriers to entry by small firms; entrepreneurial capacity of small firms in management and capital access; and such institutional characteristics as legal constraints on competition, cooperation, and trade. The paradigmatic forms of labor and supply management are (a) development of internal labor markets and supply chains versus (b) dependence on contractual arrangements and outsourcing (which can be pursued through any of the organizational relationships noted). "Flexibility," the sine qua non of modern management, can in fact be pursued through any of these forms and their combination. Though these forms have a wide variety of sources and influences, their operation has substantial impact on the economic linkages among regions, the interaction of economic sectors within regions, the types of employment opportunities within regions, and the likelihood of sustained economic activity by the actors in a given region.

Because of the importance of these forms for regional well being, the ways in which producer services firms and internalized producer services activities (a) are organized themselves and (b) support the different organizational and labor/supply forms are worthy topics for investigation. Beyers and Lindahl [1997a&b; Lindahl and Beyers 1998] use organizational-growth-strategy typologies to relate organizational forms of producer services providers to specific sectors, labor practice, and age of the enterprises. Wood [1991], Perry [1992], and Coffey and Bailly [1993] have postulated how producer services fit into various of these forms in support of flexibilities of scale and scope. Economies of scale in the generation and dissemination of useful technical and market information are an important explanation of the trend toward increased use of specialized producer services. Still needed, however, are studies of the ways in which firms obtain specific types of information under different network structures (and in different world contexts), so that our understanding of producer services as information conduits is not limited to one form of inter-corporate organization. What is the relative importance of labor-embodied, capital-embodied, traded, and non-traded information to producer services providers — by sector, regional availability of these information sources, temporal changes in technology, and position of the producer services activity within versus external to other organizations? How are producer services networked? How do producer services assist the formation of networks?

How are these relationships affected by regional and temporal variations in communications technology and infrastructure? The individual producer services contractor or entrepreneur can engage in extreme locational flexibility, maintaining information connectivity based on a professional nexus and small-scale information technology. But large-scale, corporate location requires labor, network connections, and physical infrastructure at such a scale that requires concerted corporate and public-sector action, as investment in one component in isolation is insufficient for information-intensive development [Munnell 1990; Richardson and Gillespie 1996: 107-8; Salomon 1996].

Networks for non-traded information. Informal networks through which non-traded information flows — whatever the medium — provide two important sources of externalities. The first is that additional participants add to the utility of the network by providing more points of contact. Indeed, early network participants are engaging in a form of social investment, the returns from which may not be seen unless and until the network becomes more populated. The second property of such networks is the need for participants to assess the veracity and utility of information received. Prior and continued interaction with other participants is the best source of such judgment. Together, these properties suggest that the utility of a network depends on its population as well as the density of interaction, and suggest that overall welfare may be increased by subsidizing the start of network interaction. The importance of non-traded information for the operation of producer services makes these externalities loom large in the logic of producer services growth and utility for other sectors of the economy. Are proximity, economic linkages, and social networks substitutes in the delivery of non-traded linkages to and from producer services activities?

Localized externalities? Despite the ability of information linkages to transcend any earthly distance, local characteristics remain a determinant of the economic utility of these linkages. The prior investment in physical and social networks can be considered a type of prior investment that limits localized rates of growth (even under omnipresent availability of knowledge) in a Romer model. A nation, region, firm, social group, or individual must have access to networks in order to make use of relevant information. Thus, even in a model that denies geographic localization of knowledge externalities, inter-locational variation in prior investment (as well as distribution of sectors that are heterogeneous with respect to the returns to knowledge and other inputs) generates persistent differences in growth rates.

The findings of Glaeser et al. [1992] and those reported by Glaeser [1994] suggest that industrial structure and industrial organization influence the speed and strength of localized technical spillovers. U.S. metropolitan agglomerations with more diversified industrial structures and more competitive industrial organizations grew more rapidly over the 1956-87 period. Hansen [1990; 1994] was able to account for half the variation in U.S. metropolitan areas’ per capita incomes by the variation in educational attainment, internalized and marketed producer services activity (as a proportion of regional size), and absolute population size. The producer services variable explained the largest part of the income variation. While these variables are proxies for many interacting relationships, the strength of the finding is striking. producer services add to the diversity of the mix of firms in region, and external producer services exist to make technical and market information available to all clients.

Capello and Nijkamp [1996] operationalized the concept of economic connectivity simply by quantifying the number of direct market linkages between pairs of firms within a region, using specified communications media. Firm- and medium-specific connectivity indices were computed, by relating the number of reported linkages to the number of potential linkages. The correlation between firms’ connectivity indices and their performance levels (a simple measure of revenue per employee) was measured, and found to be moderate, significant, and positive in the more advanced and connected region, but minimal and insignificant in the less advanced and less connected region. This finding supported the authors’ hypotheses that economic connectivity positively influences performance, but only in connection-rich contexts with large network externalities. We might postulate that externalities do not produce growth without (a) continued production of positive externalities despite the market failure to capture them and (b) presence of productive activity to take advantage of the externalities.

So we return to the observed but unmeasured phenomenon of localized externalities, but now we recognize the potential importance of localization (a) in the transfer of non-traded information and (b) in the operation of networks that themselves may span the globe. Storper [1995: 209] suggested that production systems gain locational specificity "in three ways — the labour market, the input-output systems, and the knowledge system." I would argue that the study of producer services has long emphasized the localization of input-output linkages, and that the foregoing provides an additional lens for doing so: the lens of information linkages. Information flows also lie at the core of this paper’s concern for the complex ways in which localization does and does not come about through the "knowledge system." I will now turn to the labor system in and across producer services, which forms an important source of information transfer in localized production systems and is a source of much of the localized economic and social impact of producer services activity.

HUMAN RESOURCES AND LABOR PROCESSES IN PRODUCER SERVICES

In the sections above I have alluded to the importance of "labor" and "labor process" in producer services and in the creation, transmission, and use of information generally. Before discussing these processes, their temporal changes, and their spatial manifestations, it is necessary to emphasize the shortcomings of the concept "labor." The study of producer services brings these shortcomings, present in all aspects of economics, regional science, and economic geography, more fully to light.

The concept of "labor" as a factor of production, distinguished only by "skill" and "wage,’ poses problems in sectors where some workers are also entrepreneurs, and some workers are shareholders or partners in the enterprise. The term "labor" enforces a static and monolithic conceptualization of individual people who: (a) with their embodiment of knowledge, form a basis for the creation of value; (b) are crucial carriers of the externalities associated with knowledge creation and information flow; and (c) engage in many processes (migration, transportation, formal continuing education, or ineffective education) that respond dynamically to a host of public policy actions or inactivity.

Characterizing labor and labor markets

Discussions of producer services never assume homogeneous labor. Even the simplest models and discussions assume a dichotomous use of human resources in producer services. The information basis of many producer services operations has reinforced the general modern tendency to dichotomize labor into "unskilled" and "skilled" categories: roles that handle, store or process information (especially "data") are separated from roles that design, analyze, or infer from information. However, technological and managerial innovation is muddying, or at least re-drawing these distinctions, as software makes it easier for information handling and processing to entail more analysis and inference and as low-level (and low-paying) occupations are redesigned to take advantage of these machine-embodied capabilities.

The theoretical and the practical delineations of "unskilled" and "skilled" or professional labor are generally treated unproblematically. Indeed, the actual operation of most labor markets often take these to be straightforward: in advanced producer services, the key distinction is possession of a college degree. In this empirical context, the use of self-selection identifiers such as a college degree as a simple signaling device becomes very stark. Such signaling has several implications. With widespread knowledge of this device, some individuals will obtain more schooling than they might need to perform the tasks for which they are best suited or most interested. Otherwise capable individuals who cannot obtain such a degree (for household, mobility, preparation, or opportunity-cost reasons) are more constrained in their employment opportunities than their abilities might warrant (see Arrow [1973], Stiglitz [1975]). This is a crude distinction, and very imperfectly predicts the abilities and performance of individuals in a given work context. In settings where individuals’ capabilities have tremendous impact on the success of firms, as in some of the producer services, the crudeness of this widely used signal increases the incidence of two observed outcomes: hiring (or even internal promotion) on the basis of prior observation or information from professional or personal networks [Granovetter 1988; 1995]; and entrepreneurial activity by those who feel undervalued by the employment market. On the other hand, in settings where the capabilities of importance are timing and attitude rather than training or background knowledge, employers make use of signals such as gender and ethnicity, particularly when these signals have been widely used in the particular industry and region, becoming part of the local expectations.

The concept of the local labor market is central to a regional science approach to producer services location and growth. Unfortunately, it is a very difficult concept. The definition of local labor markets is subject to the difficulty of all delineations based on potential interaction, though practicalities of data availability generally drive the implementation of the concept [Schubert et al. 1987]. Regardless of the delineation method, the scale of local labor markets is totally dependent upon the individual’s temporal and transport relationship between home and work, which can be generalized to bear relationships with gender, income, social networks, and occupation. Most importantly, the delineation and use of the local labor market concept should allow the specification of localized labor practices [Saxenian 1994; Peck 1996: Ch.4].

The presence and nature of labor organization are critical institutional arrangements affecting localized employment, work practices, and the transmission of non-traded information (in the form of tacit knowledge). regional science currently employs a wide range of concepts for corporate structures and behaviors, but faces a paucity of concepts for labor organization. Perhaps because unionization rates are so low in U.S. producer services sectors, issues of labor organization or representation have hardly entered the producer services research literature. If labor organization were simply a matter of unionization or not, the empirical lack of unionization might explain the silence on labor issues. However, the expectations, relative power, and internal divisions of workers are more complex than one dichotomous variable (whether that variable be "skilled/unskilled" or "unionized/non-union"). What are the sources of employee (or contracted worker) bargaining power in "flexible" labor arrangements? Studying the operation of labor markets in internalized versus marketed producer services and in regions with different rates and types of labor organization can highlight the relationships among labor organization and job classifications, work processes, and employment sequencing.

Labor market segmentation and job search

The effects of regional differences in labor supply, demand, and information availability are a nexus between information and labor that regional scientists have explored. Formal and simulation approaches have modeled the relationship between local job search and interregional migration [Rogerson and MacKinnon 1981], interregional migration and stylized information flows about labor-market conditions [Amrhein 1985] or wage levels [Maier 1987], and searching and hiring in labor markets permeably segmented by occupation [Amrhein and MacKinnon 1985]. These approaches allow us to model the effects of labor-market segmentation and employment institutions on vacancy and unemployment rates, wage levels, and regional disparities. It remains for other research approaches to theorize and measure labor-market segmentation and employment institutions.

These other approaches entail conceptualization and measurement of the social, legal, and technological bases of information flow and institutional arrangements for job search, hire, and tenure. Extended social networks have been shown to be a dominant source of information about job openings and job seekers [Granovetter 1995; U.S. Department of Labor 1975; Corcoran et al. 1980]. The type of network (purely social versus work related) that is most relevant, and its importance relative to impersonal information routes varies with occupation and employment experience. In addition, Granovetter’s 1969 survey of professional, managerial, and technical hires found that 29 percent of respondents did not have "a period of time when they were actively searching for a new job (before finding the current one)" [1995: 30] and 35 percent of respondents’ current positions did not exist before the hire. Hanson and Pratt’s 1987 survey of a sample of all household in Worcester, Massachusetts found that over 50 percent of respondents had not engaged in a search for their current jobs; of those, 73 percent had learned of their jobs through personal contacts, compared with 32 percent of those who had actively searched for their jobs [1991: 236-7]. The geographic scale of the job search and/or personal network of the searcher, and the scale of the recruitment mechanisms (formal, work-network, or personal network) of the employer varies tremendously by gender, race, and occupation. Labor markets appear to be segmented in many dimensions, and the spatial dimension itself is one of multiple scales [Hanson and Pratt 1992]. How does the wide and somewhat polarized range of occupations employed in producer services affect the ways in which the employment growth in these sectors is translated into household incomes and divisions of labor?

Labor processes in producer services

What are the actual processes by which human resources are coordinated in producer services sectors? What activities are people engaged in, requiring what technical knowledge, interpersonal skills, logic? How do forms of labor deployment and coordination differ across the contexts of organizational structure (e.g., the mix of employed versus contracted labor), capital equipment, social culture, or local context? What effect do these differences seem to have on performance (client satisfaction, profitability, revenue per employee)? These are not idle empirical questions: their answers determine who is employed to do what, where, at what wages and with what tenure, with what implications for the availability of producer services for local economic activity. Answers might also provide additional levers for local and national development policies and labor-organization strategies: institutional structures loom large in determining the way that technology affects the work process. The research itself could integrate technical and strategic work done within integrated enterprises with that done in specialized producer services providers.

As the pace and importance of information management increases, how do the nature of work and the requirements of workers change? Reviewing five decades of empirical research into the work process in the midst of information-technological change, Castells [1996: 241] concluded that "automation, which received its full meaning only with the deployment of information technology, increases dramatically the importance of human brain input into the work process," at every level in (decreasingly hierarchical) work organizations. Perhaps in information processing more than materials handling, routine, unthinking operations can be automated or eliminated: a technological "fix" may be readily available in lieu of a spatial division of labor. The result, dependent on institutional arrangements, is the redundancy of workers, the reskilling of those same workers, or the replacement of clerical workers with others (perhaps with accompanying shifts in location, tenure, gender, and work conditions). Is it possible to modify institutional arrangements so that the outcome of technological change corresponds to local employment needs?

Finally, much producer services labor is conducted outside of "firms," in entrepreneurial and sole-contractor arrangements. The locational flexibility of these arrangements has increased with improvements and cost reductions in computing and communications technology, with implications for the incomes, public-service needs, and support-service needs in suburban, exurban, and rural locations [Beyers and Lindahl 1997a; Nelson 1997a&b] as well as for urban residents who may not benefit from decentralized, flexible contracting arrangements. The technology, however, is not the driver but the enabler of work relationships: institutional arrangements, cost structures, and social goals of firms, workers, and governments determine the ultimate trends in particular places [Castells 1996: 220-1].

Regional, labor-induced impacts of producer-service employment

Finally, the employment of human resources in producer services results in fundamental changes in the nature of localized regions. The most obvious of these are the direct and indirect multipliers of proprietors’ and wage income. In small or rural regions, the high value added of producer services can quickly yield a substantial change in local incomes [Nelson 1997b]. The nature of work in some producer services and other information-intensive sectors and occupations means that the indirect economic impacts have manifestations not usually considered. Massey [1995] investigated the work and home habits of the scientific staff in the Cambridge (England) "high-technology" industrial complex. The local work culture of very long hours meant that workers relied exclusively on unpaid spouses (almost always wives) or paid cleaners and catering for all domestic activity, generally including child-rearing. Residential locations close to the workplace were favored, to reduce commuting time, and desirable residential spaces with that proximity were bid up in price. The result is a occupational-culturally derived spatial, economic, and social structure financed by the staff wages (also see Hanson and Pratt 1992]. The geography of consumption spaces responds to the time pressures and long hours of office workers (increased rents and intensity for retailing in and near office centers) and to the prevalence of (part-time) home offices to be equipped and fed.

The distribution of the direct wage payments from producer services activities bears much more attention. Occupational distributions may not tell the whole story. On the basis of a review of seven decades of sectoral/occupational data from the G-7 countries, Castells [1996: 220] concludes

Ultimately, producer services are part of a set of institutional structures — "skill" designation, wage determination, information generation and flow, inter alia — that shape the conduct of market and non-market transactions and that determine not only regional per capita incomes but the distribution of information, wealth, and satisfaction within regions. The comprehension of these distributions across and within regions should be a goal of regional science study and analysis.

INTELLECTUAL BENEFITS TO REGIONAL SCIENCE

These two sets of theoretical challenges for producer services research have several points of intersection, and the paths toward resolving them have some commonalities. Both should lead students of producer services and regional development to study the sociological foundations of information generation and transfer, of information, organizational, and personal networks, and of the creation of salable commodities from human resources (in firms and through entrepreneurial contracting). The difficulties can be surmounted, and in so doing, students of producer services may help revitalize regional science. Lively debate has occurred among regional scientists and others about the intellectual challenges that the field needs to face. Chinitz [1995] suggested theoretical and empirical research on the ways in which new communications technologies will reshape the space economy. Stough [1994] urged a systematic and generalizable study of the role of individual and institutional leadership in regional economic development, given the externalities of individual (corporate) actions or inactivity within spatially circumscribed areas. Bailly and Coffey [1994: 10] called for greater attention to human agency, to "make a greater effort to recognize the human dimension and to treat people as people."

Many writers have called for more attention to policy formulation and policy utility in basic regional science research and writing, and more engagement in policy circles by regional scientists. The "information economy" is on every policy agenda, if only because the business and government worlds are being rocked by the promise, profit, and problems of new information technologies. Issues of individuals’ participation in the economic system also loom large in every U.S. region. Generally, not enough adults have the training necessary to participate in modern work settings. Some adults seem outside of the geographic and social net cast by employers, and the large amount of economic activity that does sustain people outside of regular, corporate or government employment goes unseen and not understood.

To date, regional science has not theorized or even dealt empirically with regions as multi-dimensional places. The avoidance has had the benefit of tractable models. The vanguard of modeling capabilities and theoretical questions has moved on, as has observed reality: