Consolidation versus fragmentation: Testing optimum metropolitan government structure

The proportion of a unit of government's budget devoted to labor costs determines whether cost reductions at the metropolitan level are achieved through fragmentation or consolidation. Consolidating capital intense functions at higher levels of government is the optimal cost-reducing strategy. Fragmenting labor-intense functions to lower levels of government is the optimal cost-reducing strategy. This organizing principle explains the results of previous research and allows a cross sectional analysis of all units of government within US metropolitan statistical areas based on their labor ratio. The hypothesized optimum form of metropolitan government structure for cost efficiency, few capital intense units of government and many labor intense units of government, is correlated with a five year net change in private sector jobs. The hypothesized relationship between metropolitan government structure and economic development is rejected.