The three-sector model in
economics
Economics () is the social science that studies the Production (economics), production, distribution (economics), distribution, and Consumption (economics), consumption of goods and services.
Economics focuses on the behaviour and intera ...
divides
economies
An economy is an area of the production, distribution and trade, as well as consumption of goods and services. In general, it is defined as a social domain that emphasize the practices, discourses, and material expressions associated with the p ...
into three
sectors
Sector may refer to:
Places
* Sector, West Virginia, U.S.
Geometry
* Circular sector, the portion of a disc enclosed by two radii and a circular arc
* Hyperbolic sector, a region enclosed by two radii and a hyperbolic arc
* Spherical sector, a p ...
of activity: extraction of
raw material
A raw material, also known as a feedstock, unprocessed material, or primary commodity, is a basic material that is used to produce goods, finished goods, energy, or intermediate materials that are feedstock for future finished products. As feedst ...
s (
primary
Primary or primaries may refer to:
Arts, entertainment, and media Music Groups and labels
* Primary (band), from Australia
* Primary (musician), hip hop musician and record producer from South Korea
* Primary Music, Israeli record label
Works
* ...
),
manufacturing
Manufacturing is the creation or production of goods with the help of equipment, labor, machines, tools, and chemical or biological processing or formulation. It is the essence of secondary sector of the economy. The term may refer to a r ...
(
secondary
Secondary may refer to: Science and nature
* Secondary emission, of particles
** Secondary electrons, electrons generated as ionization products
* The secondary winding, or the electrical or electronic circuit connected to the secondary winding i ...
), and
service
Service may refer to:
Activities
* Administrative service, a required part of the workload of university faculty
* Civil service, the body of employees of a government
* Community service, volunteer service for the benefit of a community or a pu ...
industries which exist to facilitate the transport, distribution and sale of goods produced in the secondary sector (
tertiary
Tertiary ( ) is a widely used but obsolete term for the geologic period from 66 million to 2.6 million years ago.
The period began with the demise of the non-avian dinosaurs in the Cretaceous–Paleogene extinction event, at the start ...
). The model was developed by
Allan Fisher,
Colin Clark, and
Jean Fourastié
Jean Fourastié (; 15 April 1907 in Saint-Benin-d'Azy, Nièvre - 25 July 1990 in Douelle, Lot) was a French civil servant, economist, professor and public intellectual. He coined the expression ''Trente Glorieuses'' ("the glorious thirty ears) ...
in the first half of the 20th century, and is a representation of an
industrial economy
In economics, industrial organization is a field that builds on the theory of the firm by examining the structure of (and, therefore, the boundaries between) firms and markets. Industrial organization adds real-world complications to the perfe ...
. It has been criticised as inappropriate as a representation of the economy in the 21st century.
According to the three-sector model, the main focus of an economy's activity shifts from the primary, through the secondary and finally to the tertiary sector. Countries with a low
per capita income
Per capita income (PCI) or total income measures the average income earned per person in a given area (city, region, country, etc.) in a specified year. It is calculated by dividing the area's total income by its total population.
Per capita i ...
are in an early state of
development
Development or developing may refer to:
Arts
*Development hell, when a project is stuck in development
*Filmmaking, development phase, including finance and budgeting
*Development (music), the process thematic material is reshaped
*Photographi ...
; the main part of their
national income
A variety of measures of national income and output are used in economics to estimate total economic activity in a country or region, including gross domestic product (GDP), gross national product (GNP), net national income (NNI), and adjusted nati ...
is achieved through production in the primary sector. Countries in a more advanced state of development, with a medium
national income
A variety of measures of national income and output are used in economics to estimate total economic activity in a country or region, including gross domestic product (GDP), gross national product (GNP), net national income (NNI), and adjusted nati ...
, generate their income mostly in the secondary sector. In highly developed countries with a high income, the tertiary sector dominates the total output of the economy.
The rise of the
post-industrial
In sociology, the post-industrial society is the stage of society's development when the service sector generates more wealth than the manufacturing sector of the economy.
The term was originated by Alain Touraine and is closely related to s ...
economy in which an increasing proportion of economic activity is not directly related to physical goods has led some economists to expand the model by adding a fourth
quaternary
The Quaternary ( ) is the current and most recent of the three periods of the Cenozoic Era in the geologic time scale of the International Commission on Stratigraphy (ICS). It follows the Neogene Period and spans from 2.58 million years ...
or fifth
quinary sector
The three-sector model in economics divides economies into three sectors of activity: extraction of raw materials ( primary), manufacturing ( secondary), and service industries which exist to facilitate the transport, distribution and sale ...
s, while others have ceased to use the model.
Structural transformation according to Fourastié
Fourastié saw the process as essentially positive, and in ''The Great Hope of the Twentieth Century'' he wrote of the increase in
quality of life
Quality of life (QOL) is defined by the World Health Organization as "an individual's perception of their position in life in the context of the culture and value systems in which they live and in relation to their goals, expectations, standards ...
, social security, blossoming of education and culture, higher level of qualifications, humanisation of work, and avoidance of
unemployment
Unemployment, according to the OECD (Organisation for Economic Co-operation and Development), is people above a specified age (usually 15) not being in paid employment or self-employment but currently available for Work (human activity), w ...
.
The distribution of the workforce among the three sectors progresses through different stages as follows, according to Fourastié:
First phase: Traditional civilizations
Workforce quotas:
* Primary sector: 64.5%
* Secondary sector: 20%
* Tertiary sector: 15.5%
This phase represents a society which is scientifically not yet very developed, with a negligible use of
machine
A machine is a physical system using Power (physics), power to apply Force, forces and control Motion, movement to perform an action. The term is commonly applied to artificial devices, such as those employing engines or motors, but also to na ...
ry. The state of development corresponds to that of European countries in the early
Middle Ages
In the history of Europe, the Middle Ages or medieval period lasted approximately from the late 5th to the late 15th centuries, similar to the post-classical period of global history. It began with the fall of the Western Roman Empire a ...
, or that of a modern-day
developing country
A developing country is a sovereign state with a lesser developed industrial base and a lower Human Development Index (HDI) relative to other countries. However, this definition is not universally agreed upon. There is also no clear agreem ...
.
Second phase: Transitional period
Workforce quotas:
* Primary sector: 40%
* Secondary sector: 40%
* Tertiary sector: 20%
More machinery is deployed in the primary sector, which reduces the number of workers needed to produce a given output of food and raw materials. Since the food requirements of a given population do not change much, employment in agriculture declines as a proportion of the population.
As a result, the demand for machinery production in the secondary sector increases and workers move from agriculture to manufacturing. The transitional way or phase begins with an event which can be identified with the
industrialisation
Industrialisation ( alternatively spelled industrialization) is the period of social and economic change that transforms a human group from an agrarian society into an industrial society. This involves an extensive re-organisation of an econo ...
: far-reaching mechanisation (and therefore automation) of manufacture, such as the use of
conveyor belt
A conveyor belt is the carrying medium of a belt conveyor system (often shortened to belt conveyor). A belt conveyor system is one of many types of conveyor systems. A belt conveyor system consists of two or more pulleys (sometimes referred to ...
s.
The tertiary sector begins to develop, as do the
financial
Finance is the study and discipline of money, currency and capital assets. It is related to, but not synonymous with economics, the study of production, distribution, and consumption of money, assets, goods and services (the discipline of fina ...
sector and the power of the state.
Third phase: Tertiary civilization
Workforce quotas:
* Primary sector: 10%
* Secondary sector: 20%
* Tertiary sector: 70%
The primary and secondary sectors are increasingly dominated by automation, and the demand for workforce numbers falls in these sectors. It is replaced by the growing demands of the tertiary sector, where productivity growth is slower.
Criticism of Fourastié's model
Various empirical studies seemingly confirm the three-sector hypothesis, but employment in the primary sector fell far more than Fourastié predicted. Germany's
Federal Statistical Office study shows the following employment proportions for 2014: primary sector at 1.5%, secondary sector at 24.6%, and tertiary sector at 73.9%.Furthermore, four incorrect predictions can be found in his book on the subject:
[Jean Fourastié: ''Le Grand Espoir du XXe siècle. Progrès technique, progrès économique, progrès social''. Presses Universitaires de France, Paris 1949 (''The 20th century's Great Hope. Technological progress, economic progress, social progress.'']
Fourastié predicted that the transition from the secondary to the tertiary sector would eliminate the problem of unemployment as, in his opinion, this sector could not be rationalized. When he conceived of the theory in the
1930s
File:1930s decade montage.png, From left, clockwise: Dorothea Lange's photo of the homeless Florence Thompson shows the effects of the Great Depression; due to extreme drought conditions, farms across the south-central United States become dry a ...
, however, he did not foresee the enormous technological progress made in the service sector, such as invention of the modern
computer
A computer is a machine that can be programmed to Execution (computing), carry out sequences of arithmetic or logical operations (computation) automatically. Modern digital electronic computers can perform generic sets of operations known as C ...
bringing with it the digital revolution.
Fourastié's false prognosis is that there will be no country in the highly developed third phase which also has a significant secondary sector. The best example to counter this is Germany: in
German economy
The economy of Germany is a Developed country, highly developed social market economy. It has the largest national economy in Europe, the List of countries by GDP (nominal), fourth-largest by nominal GDP in the world, and List of countries by ...
, the secondary sector has sharply declined since the 1950s, but not quite to the level that Fourastié predicted due to
Germany's high exports.
Another Fourastié's false prediction states that the tertiary sector would always place high demands on employees in terms of education, which is not the case, since the service occupations also include cleaning services, shoeshining, parcel delivery service etc.
The high level of income equality predicted by Fourastié also did not take place; in fact, the opposite development has happened: the
inequality of income distribution has been increasing in most OECD countries.
Fourastié described the tertiary sector - which is usually seen as equivalent with the service sector - as a production sector enjoying little to no technical progress and thus offering at best a slight increase in labor productivity. Confinement of the service sector within the tertiary sector today is only tenable in few areas. Instead, addition of the fourth "information sector" can be seen, leading towards the development of a
knowledge society A knowledge society generates, shares and makes available to all members of the society knowledge that may be used to improve the human condition. A knowledge society differs from an information society in that the former serves to transform informa ...
.
Extensions to the three-sector model
Further development has led to the service or
post-industrial society
In sociology, the post-industrial society is the stage of society's development when the service sector generates more wealth than the manufacturing sector of the economy.
The term was originated by Alain Touraine and is closely related to si ...
. Today the
service sector
The tertiary sector of the economy, generally known as the service sector, is the third of the three economic sectors in the three-sector model (also known as the economic cycle). The others are the primary sector (raw materials) and the second ...
has grown to such an enormous size that it is sometimes further divided into an information-based
quaternary sector
The quaternary sector of the economy is based upon the economic activity that is associated with either the intellectual or knowledge-based economy. This consists of information technology; media; research and development; information-based servi ...
, and even a quinary sector based on human services.
Quaternary sector
The quaternary sector, sometimes referred to as the research and development sector, consists mainly of businesses providing information services, intellectual activities and knowledge based activities aimed at future growth and development.
Activities include, and are mainly composed of: scientific research, ICT/computing, education, consulting, information management and financial planning.
Contrary to what might be inferred from the naming convention, the quaternary sector does not add value to the outputs of the tertiary sector, but provides
services
Service may refer to:
Activities
* Administrative service, a required part of the workload of university faculty
* Civil service, the body of employees of a government
* Community service, volunteer service for the benefit of a community or a pu ...
directly with limited reliance on purchased inputs. The output of the quaternary sector is difficult to measure. The volume of information produced has grown rapidly, in line with
Moore's Law
Moore's law is the observation that the number of transistors in a dense integrated circuit (IC) doubles about every two years. Moore's law is an observation and projection of a historical trend. Rather than a law of physics, it is an empir ...
.
Quinary sector
Definitions of the quinary sector vary significantly. Some define it as merely non-profit work such as for
charities
A charitable organization or charity is an organization whose primary objectives are philanthropy and social well-being (e.g. educational, religious or other activities serving the public interest or common good).
The legal definition of a cha ...
and
NGO
A non-governmental organization (NGO) or non-governmental organisation (see spelling differences) is an organization that generally is formed independent from government. They are typically nonprofit entities, and many of them are active in h ...
s.
Others define it as the sector that focuses on human services and control, such as government and some charities, as well as creation or non-routine use of information and new technologies, linking slightly with the
quaternary sector
The quaternary sector of the economy is based upon the economic activity that is associated with either the intellectual or knowledge-based economy. This consists of information technology; media; research and development; information-based servi ...
.
Sometimes referred to as ‘gold collar’ professions,
they include special and highly paid skills of senior business executives, government officials, research scientists, financial and legal consultants, etc. The highest level of decision makers or policy makers perform quinary activities.
Value added, national accounts and the three sector model
The 3 sector model is closely related to the development of
national accounts
National accounts or national account systems (NAS) are the implementation of complete and consistent accounting techniques for measuring the economic activity of a nation. These include detailed underlying measures that rely on double-entry ...
, notably by Colin Clark. The concept of
value added
In business, total value added is calculated by tabulating the unit value added (measured by summing unit profit sale price and production cost">Price.html" ;"title="he difference between Price">sale price and production cost], unit depreciatio ...
is central to national accounting. Value added in the secondary sector of the economy (manufacturing) is equal to the difference between the (wholesale) value of goods produced and the cost of raw materials supplied by the primary sector. Similarly, the value added by the tertiary sector is equal to the difference between the retail price paid by consumers and the wholesale price paid to manufacturers.
The concept of value added is less useful in relation to the quaternary and quinary sectors.
See also
*
Colin Clark (economist)
Colin Grant Clark (2 November 1905 – 4 September 1989) was a British and Australian economist and statistician who worked in both the United Kingdom and Australia. He pioneered the use of gross national product (GNP) as the basis for studyin ...
*
Jean Fourastié
Jean Fourastié (; 15 April 1907 in Saint-Benin-d'Azy, Nièvre - 25 July 1990 in Douelle, Lot) was a French civil servant, economist, professor and public intellectual. He coined the expression ''Trente Glorieuses'' ("the glorious thirty ears) ...
*
Primary sector of the economy
The primary sector of the economy includes any industry involved in the extraction and production of raw materials, such as farming, logging, fishing, forestry and mining.
The primary sector tends to make up a larger portion of the economy in d ...
*
Secondary sector of the economy
In macroeconomics, the secondary sector of the economy is an economic sector in the three-sector theory that describes the role of manufacturing. It encompasses industries that produce a finished, usable product or are involved in construction. ...
*
Tertiary sector of the economy
The tertiary sector of the economy, generally known as the service sector, is the third of the three economic sectors in the three-sector model (also known as the economic cycle). The others are the primary sector (raw materials) and the second ...
*
Quaternary sector of the economy
The quaternary sector of the economy is based upon the economic activity that is associated with either the intellectual or knowledge-based economy. This consists of information technology; media; research and development; information-based servi ...
*
Information Revolution
The term information revolution describes current economic, social and technological trends beyond the Industrial Revolution.
Many competing terms have been proposed that focus on different aspects of this societal development.
The British polymat ...
*
De-industrialization
Deindustrialization is a process of social and economic change caused by the removal or reduction of industrial capacity or activity in a country or region, especially of heavy industry or manufacturing industry.
There are different interpre ...
*
Private sector
The private sector is the part of the economy, sometimes referred to as the citizen sector, which is owned by private groups, usually as a means of establishment for profit or non profit, rather than being owned by the government.
Employment
The ...
References
Further reading
* Bernhard Schäfers: ''Sozialstruktur und sozialer Wandel in Deutschland.'' ("Social Structure and Social Change in Germany") Lucius und Lucius, Stuttgart 7th edition 2002
* Clark, Colin (1940) ''Conditions of Economic Progress''
* Fisher, Allan GB. ''Production, primary, secondary and tertiary.'' Economic Record 15.1 (1939): 24-38
* Rainer Geißler: ''Entwicklung zur Dienstleistungsgesellschaft''. In: ''Informationen zur politischen Bildung''. Nr. 269: ''Sozialer Wandel in Deutschland'', 2000, p. 19f.
* Hans Joachim Pohl: ''Kritik der Drei-Sektoren-Theorie.'' ("Criticism of the Three Sector Theory") In: ''Mitteilungen aus der Arbeitsmarkt- und Berufsforschung.'' Issue 4/Year 03/1970, p. 313-325
* Stefan Nährlich: ''Dritter Sektor: "Organisationen zwischen Markt und Staat."'' ("Third Sector: Organizations Between Market and State"). From ''"Theorie der Bürgergesellschaft" des Rundbriefes Aktive Bürgerschaft'' ("Theory of the Civil Society" of the newsletter "Active Civil Society") 4/2003
* Uwe Staroske: ''Die Drei-Sektoren-Hypothese: Darstellung und kritische Würdigung aus heutiger Sicht'' ("The Three-Sector-Hypothesis: Presentation and Critical Appraisal from a Contemporary View"). Roderer Verlag, Regensburg 1995
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Private sector
Economic theories