Regional Specialization : From the Geography of Industries to the Geography of Jobs

Our analysis begins with an empirical investigation of how employment concentration in industries and occupations across United States regions has changed over time, and how regional specialization has changed. Results show that industry concentration and specialization indices have fallen, while occupation concentration and specialization indices have risen. Using this background as motivation, we develop a model in which the comparative advantage of regions lies in their productivity of supplying functions such as law, finance, advertising and engineering, to multiple sectors. Region-function-specific productivity differences shape the location decisions of industries that use multiple functions, and hence determine patterns of regional specialization both in functions and in sectors. A key parameter is the cost of sourcing functions from a different region (fragmentation costs) and we show that a fall in this cost mimics the data: sector concentration and regional specialization fall and function concentration and specialization rise