Determinants of business and personal services: evidence from West-German regions

In the Employment Guidelines for the year 2000, the European Commission stressed the need to develop a policy framework in order to fully exploit the employment potential of the service sector. This concern is especially related to Germany for its massive service gap compared to Anglo-Saxon (United States, United Kingdom) and Scandinavian countries (Denmark, Sweden) in general, and in personal and business services in particular. The focus of this study is to understand the theoretical basis of the dynamic of employment growth in services and to identify especially the determinants that foster the growth of business services and the creation of jobs in personal services in Germany. The paper starts therefore with an extensive literature review on service employment with a particular focus on business and personal services and on the German debate. For the empirical analysis, the study uses the variations in the structure and dynamics of employment in 11 agglomerated areas in West-Germany in the period of 1977 to 1998. As far as business services are concerned, the empirical analysis supports the concept of the interactive nature of knowledge intensive sector within business services and knowledge intensive manufacturing industries. A corollary feature is the strong correlation between the skill level of the regional labour force and regional employment growth, especially related to export-oriented services and business services. Knowledge intensive business services are still concentrated in the agglomerated areas. On the other hand, large-scale internal labour markets in manufacturing, located so far mostly in metropolitan areas, are transformed into network labour markets. In concordance with the location theory, we find a consistent pattern of relative employment losses in agglomerated areas due to a weakening of centripetal forces (linkages, thick markets, knowledge spillovers and other pure externalities) and a strengthening of centrifugal forces (increasing prices of immobile factors, land rent and ...