The three-sector model in

economics Economics () is the social science that studies the production, distribution, and consumption of goods and services. Economics focuses on the behaviour and interactions of economic agents and how economies work. Microeconomics analyzes ...

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 ...

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 materials ( primary),

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 ...

( secondary), and service 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 perf ...

. 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 * Photograph ...

; the main part of their national income is achieved through production in the primary sector. Countries in a more advanced state of development, with a medium national income, 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 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 or fifth quinary sectors, while others have ceased to use the model.

Structural transformation according to Fourastié

The distribution of the workforce among the three sectors

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 during the refere ...

. 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 machinery. 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 ...

, or that of a modern-day developing country.

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: far-reaching mechanisation (and therefore automation) of manufacture, such as the use of conveyor belts. The tertiary sector begins to develop, as do the financial 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, however, he did not foresee the enormous technological progress made in the service sector, such as invention of the modern computer 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 highly developed social market economy. It has the largest national economy in Europe, the fourth-largest by nominal GDP in the world, and fifth by GDP (PPP). In 2017, the country accounted for 28% of the euro ar ...

, 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 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 serv ...

, 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 p ...

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.

Quinary sector

Definitions of the quinary sector vary significantly. Some define it as merely non-profit work such as for charities 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

. 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 depreciation ...

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.