The three-sector model in

economics Economics () is a behavioral science that studies the Production (economics), production, distribution (economics), distribution, and Consumption (economics), consumption of goods and services. Economics focuses on the behaviour and interac ...

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 ...

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 ...

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/Intermediate goods that are feedstock for future finished ...

s ( 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 the secondary sector of the economy. The term may refer ...

( secondary), and service industries which exist to facilitate the transport, distribution and sale of goods produced in the secondary sector ( tertiary). 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 average income measures the average income earned per person in a given area (city, region, country, etc.) in a specified year. In many countries, per capita income is determined using regular population surveys, such ...

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 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), as well as the current and most recent of the twelve periods of the ...

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 the proportion of people above a specified age (usually 15) not being in paid employment or self-employment but currently available for work du ...

. 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 that uses power to apply forces and control movement to perform an action. The term is commonly applied to artificial devices, such as those employing engines or motors, but also to natural biological macromol ...

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 5th to the late 15th centuries, similarly to the post-classical period of global history. It began with the fall of the Western Roman Empire and ...

, or that of a modern-day

developing country A developing country is a sovereign state with a less-developed industrial base and a lower Human Development Index (HDI) relative to developed countries. However, this definition is not universally agreed upon. There is also no clear agreeme ...

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 ( UK) or industrialization ( US) 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 reorganisation of an economy for th ...

: 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 Finance refers to monetary resources and to the study and Academic discipline, discipline of money, currency, assets and Liability (financial accounting), liabilities. As a subject of study, is a field of Business administration, Business Admin ...

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%. Fourastié made four predictions which turned out to be incorrect :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 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 Owens Thompson, Florence Thompson shows the effects of the Great Depression; due to extreme drought conditions, farms across the south-central Uni ...

, he did not foresee the technological progress made in the service sector, notably the invention of the

computer A computer is a machine that can be Computer programming, programmed to automatically Execution (computing), carry out sequences of arithmetic or logical operations (''computation''). Modern digital electronic computers can perform generic set ...

and the advent of the

Information Age The Information Age is a historical period that began in the mid-20th century. It is characterized by a rapid shift from traditional industries, as established during the Industrial Revolution, to an economy centered on information technology ...

. Fourastié incorrectly predicted that there would be no country in the highly developed third phase which also has a significant secondary sector. And yet in the German economy, although the secondary sector has sharply declined since the 1950s, it was not to the level that Fourastié predicted, due to Germany's high exports. Another incorrect prediction was 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, the 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 info ...

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 ...

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 Moore's law is the observation that the Transistor count, number of transistors in an integrated circuit (IC) doubles about every two years. Moore's law is an observation and Forecasting, projection of a historical trend. Rather than a law of ...

Quinary sector

The quinary sector features the highest level decision-making in the economy. There is not a set definition for the quinary sector, and opinions about what is included within it vary significantly. Sometimes, only members of government, CEOs and business executives, financial and legal consultants, staff of universities, and managers of non-profits are included. Educators, research scientists, healthcare workers, and media employees may also be included. Others define it as the creation or non-routine use of information and new technologies. In the more liberal definitions, there is considerable overlap with the quaternary sector. Frequently referred to as ‘gold collar’ professions, many positions in the quinary sector are often highly paid.

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 Scientific technique, techniques for measuring the economic activity of a nation. These include detailed underlying measures that ...

, 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.