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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 anal ...
divides economies into three sectors 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 in the first half of the 20th century, and is a representation of an industrial economy. 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; 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

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 refe ...
. 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 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 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 A computer is a machine that can be programmed to carry out sequences of arithmetic or logical operations ( computation) automatically. Modern digital electronic computers can perform generic sets of operations known as programs. These prog ...
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 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.


Extensions to the three-sector model

Further development has led to the service or post-industrial society. 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, 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 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 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 ch ...
and NGOs. 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. 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, notably by Colin Clark. The concept of value added 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) * Jean Fourastié *
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 i ...
* Secondary sector of the economy *
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 seco ...
* Quaternary sector of the economy * Information Revolution * De-industrialization *
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 {{Authority control Private sector Economic theories