Establishment Growth in Small Cities and Towns

This article examines the effects of local industry agglomeration on establishment growth and employee earnings in Maine manufacturing and nonmanufacturing businesses. Empirical results reveal a positive relationship between an establishment’s 1996 to 1999 employment growth rate and the industry location quotient, measured at the two-digit standard industry classification (SIC) level in 129 municipalities and the three-digit SIC level in 16 counties. The results also indicate that industry agglomeration has a positive effect on the wages paid by an establishment relative to the U.S. industry average. In Maine municipalities, an increase in industry agglomeration is found to be a more powerful stimulant to establishment growth than a comparable increase in population size. On the other hand, an increase inmunicipality size has a relatively larger effect on establishment wages than a comparable increase in local industry agglomeration.