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Monthly data for the aggregate U.S. economy are used to assess competing hypotheses concerning the relationship between sectoral employment shifts and fluctuations in the unemployment rate. It is shown that sectoral shifts are caused by major work stoppages, aggregate fluctuations unrelated to permanent sectoral shifts, a reallocation-timing effect, and allocative shocks at the sectoral level. Larger employment shifts are associated with higher unemployment during slow growth periods and lower unemployment during above-average growth periods. Models are presented which demonstrate that both aggregate and allocative shocks are causes of cyclical increases in unemployment.

A great deal of attention recently has been focused on issues related to spatial differentials in labor productivity and the external economies of size.' Historically size economies have been related to scale economies and plant capacity.2 More recently industry and city size externalities, often termed localization and urbanization economies or simply agglomeration economies, have been analyzed to determine the direction and extent to which these size factors affect labor productivity and economies of scale [15]. A variety of issues characterize this literature, among which are the magnitude and direction of these effects, the appropriate estimating equation, and the relation between size, returns to scale, and the neutrality or factor bias of these effects. Despite their apparent success in identifying the relation between various size and productivity measures, past studies are not without their shortcomings. The purpose here is to address these issues and shortcomings in the context of estimating the external effects of industry size on labor productivity. Along the way we will indicate the shortcomings of approaches recently employed and consider the empirical importance of different measures of industry size and capital.' The next section reviews some of the shortcomings of past studies. They are of particular interest, for they are avoided by the approach and data of this study. The analytical approach is formulated in Section II which includes a report of the empirical analysis and its major findings. The final section summarizes and discusses the implications of this analysis.

A Rotterdam demand framework is used to estimate the demand for five state and local government (SLG) services. A prefere nce independence transformation of these results identifies the under lying voter wants which these services satisfy. The results reflect a shift from physical capital to human capital wants over the 1952-83 period. A general SLG want accounts for 75 to 95 percent of SLG spend ing over this period. A "minimum service level" want, including mos t highway and infrastructure spending, declines in importance over ti me, while a "human capital/infrastructure contrast" want, composed of education and health spending, increases in importance. Copyright 1987 by MIT Press.