An industry profile: professional services.

In Montana, natural resource and manufacturing jobs have been declining while service sector jobs have been rising. A similar restructuring has been taking place at the national level too, due in part to technological change and deregulation. Today, both the Montana economy and the American economy as a whole include proportionally greater and more diverse service sector employment than they did even fifteen years ago.

At first glance, this state of affairs seems plainly depressing. For when we think of service sector jobs, we tend to think of jobs that pay poorly and offer few benefits. But the services sector consists of a rapidly diversifying group of industries, some of which pay very well--and, it must be noted, require at least some college or professional certification. What are some of these "high-paying" service sector jobs in Montana? Where are they located? Are they a growing segment of the state's economy? The following profile examines economic activity in one high-paying segment of Montana's services sector, Professional Services. But before we begin, a few caveats are in order.

Professional Services, which includes activities such as engineering, accounting, research, and public relations, is a new industrial category. The Office of Management and Budget added Professional Services to its Standard Industrial Classification (SIC) system in 1987, and proprietors themselves select the SIC designation through which they report--conditions that may be affecting our data in unpredictable ways. In addition, data for the self-employment portion of Montana's Professional Services income is somewhat sketchy. Nevertheless, the following profile is, we feel, a necessary first step in analyzing this important segment of the fast-growing services sector.

Composition

The new Professional Services category includes four major components: 1) engineering, architectural and surveying services; 2) accounting, auditing, and bookkeeping services; 3) research, development and testing services; and 4) management and public relations services. It does not include doctors and lawyers; health and legal services are classified separately. As Figure 1 shows, each component accounted for about a fourth of Montana Professional Services' total 1991 wages, salaries, and employment.

Figure 1 data reflect only those wages and salaries covered by (and therefore reported to) the state's unemployment insurance system. How many other Montanans may be deriving self-employment income from Professional Services is difficult to estimate because the state does not collect industry-specific self-employment data.

However, every five years, the federal government conducts a census of various SIC categories for the states and releases data concerning both covered employment and self-employment; it did so for the new Professional Services category in 1987. For that year, slightly more than one-third (more than 2,100 jobs out of about 6,100 total) of Montana's Professional Services employment was self-employment, or sole proprietorships. Since then, Montana's covered employment in the industry has grown from nearly 4,000 to 4,700, an increase of about 18 percent in five years. We don't know how fast self employment has grown over the same period. Another federal census of the industry will be conducted in early 1993, but the results of that probably won't be available until 1994. About 15 percent of those who file Montana state taxes (or approximately 30,000 persons) also file a federal Schedule C for self-employment income, but these filers have not been analyzed in terms of SIC designation.

Earnings

As shown in Figure 2, Professional Services wages in the state are relatively high compared to other service sectors and to overall statewide wages. Professional Services pays average covered wages and salaries of $25,643 per year in Montana, well above the average statewide figure of $17,730. A few components of Professional Services earn on average less than the statewide figure for all industries. But these lower-paying components--surveying, social research, and public relations services--amount to only 5 percent of all Professional Services activity in the state.

Overall, Montana's Professional Services account for only about 6 percent (4,700) of the state's total covered service employment, but 11 percent ($233 million) of total service labor income. That pattern holds true nationally as well, where Professional Services account for 9.6 percent of service sector jobs, and 16 percent of service labor income.

Distribution

Figure 3 shows that Yellowstone, Missoula, and Lewis and Clark counties have the largest concentration of Professional Services jobs. Moreover, industry is more diversified in these counties. Accounting and bookkeeping services are usually available in even the smallest trade areas of the state. But biotechnology firms, testing and research laboratories, construction management and other specialized segments of Professional Services have located primarily in the larger communities.

Cascade, Butte-Silver Bow, Gallatin, and Flathead counties--encompassing Montana's other major cities -- have a smaller presence. Butte-Silver Bow's Professional Services employment is concentrated in one large engineering firm, MSE Inc. Cascade County's activity mostly consists of smaller engineering firms and accounting services. Employment in Gallatin and Flathead counties includes many small firms performing a variety of Professional Services. Across the rest of the state, industry activity consists primarily of very small (one- and two-person) accounting firms. Two notable exceptions exist: Ravalli County (fairly close to Missoula) is home to Ribi Immunochem, a good-sized biotechnology firm; and within Richland County's borders are several engineering firms allied with the oil industry.

We've also graphed the distribution of Montana self-employment activity in the Professional Services industry. As noted earlier, the latest self-employment data comes from a 1987 federal census. At that time sole proprietorships accounted for about one-third of Montana's Professional Services job activity, most of it concentrated in Yellowstone and Gallatin counties, and in Western Montana generally. If self-employment activity in this industry follows Montana's recent population and trade center trends, we may expect further concentration in the western part of the state.

Growth and Change

The federal Bureau of Economic Analysis (BEA) routinely estimates annual earnings for each SIC designation. It has reported on Professional Services since 1988. The BEA's estimates include both wages and salaries from covered employment, and sole proprietorship income, and are based on data from a number of sources (such as the census cited in our Figure 4, and IRS data). We've used BEA data to estimate recent earnings changes (after adjusting for inflation) in several Montana subregions.

A varied picture emerges, as shown by Figure 5. Between 1988 and 1991, the state's overall earnings from Professional Services activity grew by an average of 1.8 percent per year. However, that minuscule statewide growth rate masks some wildly divergent local situations. Note that Missoula County's Professional Services earnings have surged about 15 percent per year since 1988. Other areas in Western Montana also levels--between 6 and 8 percent per year. North central Montana's Cascade County was right up there too, with a 5 percent per year increase.

Interestingly, Gallatin County, which was one of the few growing communities in the 1980s, saw only a modest 3 percent per year increase in Professional Services earnings. Moreover, growth was essentially flat in Lewis and Clark and Yellowstone counties, both populous areas, but located in the central and eastern portions of the state.

Growth rates among nonurban areas also differed widely across the state. The nonurban west saw a substantial increase of 8 percent per year. The nonurban southeast also grew steadily, at about 3 percent per year. But the nonurban northeast experienced a drastic decline in Professional Services earnings over the past three years--over 15 percent per year. This decline may reflect two factors: a sparse and very widely scattered population in northeast Montana; and the general trend (detailed by Larry Swanson in the Autumn, 1992 MBQ) toward consolidation of commercial activity in larger trade centers.

Summary

As we've seen, there are relatively few Professional Services jobs in Montana, but the wages are well above statewide averages. Consonant with other trends in population and economic activity, industry growth appears to be concentrating in Western Montana.

Such generalizations, however, must be approached cautiously. Unlike many industries, Professional Services includes a significant portion of self-employed individuals, workers whose activity and earnings are notoriously difficult to track with current data-gathering systems. If Montana's 1987 proportion holds true (one-third of all Professional Services activity attributable to self-employment), the statewide industry may be considerably larger, and/or be distributed much differently than current data suggests. Given the widely-held assumption that most measures underestimate self-employment activity, it seems unlikely that the overall size of Montana's industry is any smaller than our data suggest.

Jim Sylvester is an economist with the Bureau. Marlene Nesary edits the Montana Business Quarterly.