Three-sector model

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 of goods produced in
the secondary sector (tertiary).[1] The model was developed by
Allan Fisher,[2][3][4] Colin Clark,[5] and Jean Fourastié[6] in the first
Industrial output in 2005
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.[7]

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 are in an early state of development; the main part of their
national income is achieved through production in the primary Service output in 2005
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, social security, blossoming of education and culture, higher
level of qualifications, humanisation of work, and avoidance of
unemployment.[6] The distribution of the workforce among the
three sectors progresses through different stages as follows,
according to Fourastié:
Three sectors 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, or that of a modern-day developing country.

Second phase: Transitional period

Clark's sector model
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.
This figure illustrates the
As a result, the demand for machinery production in the secondary percentages of a country's economy
sector increases and workers move from agriculture to made up by different sector. The
manufacturing. The transitional way or phase begins with an event figure illustrates that countries with
which can be identified with the industrialisation: far-reaching higher levels of socio-economic
mechanisation (and therefore automation) of manufacture, such as development tend to have less of
the use of conveyor belts. The tertiary sector begins to develop, as their economy made up of primary
do the financial sector and the power of the state. and secondary sectors and more
emphasis in tertiary sectors. The
less developed countries exhibit the
Third phase: Tertiary civilization inverse pattern.

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.[8]

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%.[9]Furthermore, four incorrect predictions can be found in his book on the
subject:[10]
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 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 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.[11]

Quinary sector

Definitions of the quinary sector vary significantly. Some define it as merely non-profit work such as for
charities 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.[12]
Sometimes referred to as ‘gold collar’ professions,[13] 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.[12]

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
Secondary sector of the economy
Tertiary sector of the economy
Quaternary sector of the economy
Information Revolution
De-industrialization
Private sector

References
1. Kjeldsen-Kragh, Søren (2007). The Role of Agriculture in Economic Development: The
Lessons of History. Copenhagen Business School Press DK. p. 73. ISBN 978-87-630-0194-
6.
2. Fisher, Allan G. B. (1935). The Clash of Progress and Security (http://dspace.gipe.ac.in/xmlu
i/handle/10973/24965). London: Macmillan. Retrieved 2019-07-13.
3. Fisher, Allan G. B. (1939). "Production, primary, secondary and tertiary". Economic Record.
15 (1): 24–38. doi:10.1111/j.1475-4932.1939.tb01015.x (https://doi.org/10.1111%2Fj.1475-4
932.1939.tb01015.x). ISSN 1475-4932 (https://www.worldcat.org/issn/1475-4932).
4. Fisher, Allan G. B. (1946). Economic Progress And Social Security (http://archive.org/details/
in.ernet.dli.2015.223593). London: Macmillan. Retrieved 2019-07-14.
5. Colin Clark (1940). The Conditions of Economic Progress (http://archive.org/details/in.ernet.
dli.2015.223779). London: Macmillan. Retrieved 2019-07-13.
6. Fourastié, Jean (1949). Le grand espoir du XXe siècle: Progrès technique, progrès
économique, progrès social (in French). Paris: Presses universitaires de France.
 7. Schafran, Alex; McDonald, Conor; López-Morales, Ernesto; Akyelken, Nihan; Acuto, Michele
(2018). "Replacing the services sector and three-sector theory: urbanization and control as
economic sectors" (https://www.tandfonline.com/doi/abs/10.1080/00343404.2018.1464136).
Regional Studies. 52 (12): 1708–1719. doi:10.1080/00343404.2018.1464136 (https://doi.or
g/10.1080%2F00343404.2018.1464136). S2CID 158415916 (https://api.semanticscholar.or
g/CorpusID:158415916).
8. Baumol, William (1967). "Macroeconomics of unbalanced growth: The anatomy of urban
crisis" (http://www.jstor.org/stable/1812111). American Economic Review. 57 (47): 415–26.
JSTOR 1812111 (https://www.jstor.org/stable/1812111).
9. "Gesamtwirtschaft & Umwelt - Arbeitsmarkt - Arbeitsmarkt - Statistisches Bundesamt
(Destatis)" (https://www.destatis.de/DE/ZahlenFakten/Indikatoren/LangeReihen/Arbeitsmark
t/lrerw013.html) [Overall economy & environment - Labor market -   Federal Statistical Office
report(Destatis)] (in German). www.destatis.de. Retrieved 2017-01-16.
10. 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.
11. Quiggin, John (2014). "National accounting and the digital economy" (https://espace.library.u
q.edu.au/view/UQ:336959/UQ336959_OA.pdf) (PDF). Economic Analysis and Policy. 44
(2): 136–142. doi:10.1016/j.eap.2014.05.008 (https://doi.org/10.1016%2Fj.eap.2014.05.008).
12. Kellerman, Aharon (1985-05-01). "The evolution of service economies: A geographical
perspective 1". The Professional Geographer. 37 (2): 133–143. doi:10.1111/j.0033-
0124.1985.00133.x (https://doi.org/10.1111%2Fj.0033-0124.1985.00133.x). ISSN 0033-
0124 (https://www.worldcat.org/issn/0033-0124).
13. "Sectors of Economy: Primary, Secondary, Tertiary, Quaternary and Quinary" (https://www.cl
earias.com/sectors-of-economy-primary-secondary-tertiary-quaternary-quinary/). 2014-10-
05.

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

Retrieved from "https://en.wikipedia.org/w/index.php?title=Three-sector_model&oldid=1117332176"