What sector of the economy do services fall under

The main sectors of the economy are:

1. Primary sector – extraction of raw materials – mining, fishing and agriculture.
2. Secondary / manufacturing sector – concerned with producing finished goods, e.g. Construction sector, manufacturing and utilities, e.g. electricity.
3. Service / ‘tertiary’ sector –  concerned with offering intangible goods and services to consumers. This includes retail, tourism, banking, entertainment and  I.T. services.
4. Quaternary sector (knowledge economy, education, research and development)

Video on different sectors of economy

Primary sector

The primary sector is sometimes known as the extraction sector – because it involves taking raw materials. These can be renewable resources, such as fish, wool and wind power. Or it can be the use of non-renewable resources, such as oil extraction, and mining for coal. Examples include:

• Mining, farming, fishing.

In developing economies, the primary sectors tends to take a big share with many employed in agriculture and mining. In the 1920s, over one million people were employed in the UK coal industry. It was a key part of the economy. However, improved technology and the growth of other energy sources has seen a dramatic decline in this primary sector industry.

Secondary sector

The secondary sector makes and distributes finished goods.

• Manufacturing – e.,g producing cars from aluminium.
• Construction – building homes, factories
• Utilities – providing goods like electricity, gas and telephones to households

The manufacturing industry takes raw materials and combines them to produce a higher value added finished product. For example, raw sheep wool can be spun to form a ball of better quality wool. This wool can then be threaded and knitted to produce a jumper that can be worn.

Initially, the manufacturing industry was based on labour-intensive ‘cottage industry’ e.g. hand spinning. However, the development of improved technology, such as spinning machines, enabled the growth of larger factories. Benefiting from economies of scale, they were able to reduce the cost of production and increase labour productivity. The higher labour productivity also enabled higher wages and more income to spend on goods and services.

More on: manufacturing sector

Service / tertiary sector

The service sector includes

• Retail
• Financial services – Insurance, investment
• Leisure and hospitality
• Communication
• IT
• Transportation

The service sector is concerned with the intangible aspect of offering services to consumers and business. It involves retail of manufactured goods. It also provides services, such as insurance and banking. In the twentieth century, the service sector has grown due to improved labour productivity and higher disposable income. More disposable income enables more spending on ‘luxury’ service items, such as tourism and restaurants.

More on: Reasons for the growth of the service sector

Quaternary/knowledge sector

• Education
• Research and development
• Public sector bodies

The quaternary sector is said to the intellectual aspect of the economy. It includes education, training, the development of technology, and research and development. It is the process which enables entrepreneurs to innovate better manufacturing processes and improve the quality of services offered in the economy. Without this growth of technology and information, economic development would be slow or non-existent.

It is also known as the knowledge economy – this is the component of the economy based on human capital – IT, knowledge, education. It is primarily related to the service sector, but also is related to the high tech component of manufacturing.

Change in the importance of different sectors

A primitive economy will primarily be based on the primary sector – with most people employed in agriculture and the production of food.

As an economy develops, improved technology enables less labour to be needed in the primary sector and allows more workers to produce manufactured goods. Further development enables the growth of the service sector and leisure activities.

Change in UK economy

Relative decline of UK manufacturing

Other sectors of the economy

Quinary sector

The quinary sector is the part of the economy where the top-level decisions are made. This includes the government which passes legislation. It also comprises the top decision-makers in industry, commerce and also the education sector.

Public vs Private sector

Another division is between the public sector – government and the private sector – free market, individuals and business.

The government is primarily concerned with services, such as health and education. However, the government could own key industries, such as coal mines were once nationalised in the UK. See: public vs private sector

Digital vs Traditional economy

Another division is between the traditional sector – bricks and mortar shops and the digital economy – online sales. In practice, there is an overlap between the sectors, e.g. Traditional shops have embraced aspects of the digital economy, such as online sales.

However, the digital part of the economy is becoming more pronounced with some businesses no longer having a physical presence on high street, but providing intangibles goods and services, such as Netflix.

Related pages

• Policies for economic development
• Dual economy

Major Economic Sectors

1. Primary Sector

The primary sector is composed of industries engaged in the business of gathering raw materials. It includes mining companies, lumber companies, and oil drilling companies – along with the agricultural and fishing industries.

2. Secondary Sector

The secondary sector includes all businesses involved in producing and selling goods – such as auto manufacturers, furniture stores, and clothing retailers.

3. Tertiary Sector

The tertiary sector is the service sector. It includes industries such as the financial services industry, internet technology (IT), and the healthcare and entertainment industries.

Some economists include a fourth sector – the quaternary sector in which they assign the areas of research, information technology, education, consulting, and various other elements of what has come to be known as the “knowledge-based economy.”

The knowledge-based economy is focused on utilizing information and communications (such as social media) to provide goods and services specifically tailored to the needs and wants of individual customers or clients.

An example of the knowledge-based economy in action is a retailer, such as Amazon or Walmart, sending you tailor-made ads for goods or services that your previous purchases or searches indicate that you are interested in.

Economists who do not use a fourth economic sector category assign the quaternary sector industries to the tertiary sector.

Economic Development

The tri-sector economic theory holds that the three economic sectors, in addition to delineating different areas of economic endeavor, also reflect how economies develop over time.

The most primitive economies consist primarily of economic activities related to raw materials, agricultural production, and fishing. As economies grow and develop, the manufacturing and marketing of finished goods account for the largest portion of economic activity.

Service industries are the last economic sector to experience significant growth and are the hallmark of developed nations and advanced economies.

The Primacy of the Service Sector

The fact that the service sector is designated as the tertiary sector should not be in any way taken to mean that it occupies third place in terms of economic importance.

Over the past century, the service sector has rapidly expanded. By the turn of the 21st century, it had eclipsed the manufacturing and retail goods sector as the largest sector of the economy in most developed nations.

Whereas in the early part of the 20th century, the United States became the dominant world economy, thanks to its massive manufacturing industry; by the early part of the 21st century, its worldwide economic dominance was based on its massive service sector.

In the U.S., between 1919 and 2019, the service sector grew from accounting for less than 50% of the country’s gross domestic product (GDP) to generating roughly 85% of the country’s GDP.

The explosion of the service sector has been made possible by the exponential increase in knowledge that has occurred over the past 50 to 70 years, the rapid growth of technology, and the development of instantaneous, worldwide communication through internet connections and cell phones.

Increased automation, which reduces the number of people required for manufacturing processes, is also a key element in the shift from a manufacturing-based economy to a service-based economy.

The massive expansion of government services in developed nations is another significant contributing factor to the increasing predominance of the service sector.

Examples of Service Industries

Many people do not realize the huge number of businesses and industries that combine to make up the service sector.

But if you stop and take some time to think about all the various service-related businesses, then it becomes very easy to see why the service sector is, by far, the largest sector of the economy in developed nations such as the US, the UK, Canada, Australia, Germany, and Japan.

The following are brief descriptions of just a few of the many businesses that comprise some of the major industries contained within the service sector.

1. Travel Industry

The travel industry goes way beyond just the offices of travel agents and major airlines. It also includes the rapidly growing operations of public transportation, such as subways and city buses. Uber, Lyft, and Airbnb – major businesses that didn’t even exist a mere 20 years ago – are part of the travel industry.

Additionally, the countless tourist attractions such as museums, recreation parks, national parks – such as Yellowstone and the Grand Canyon – concert halls, and art galleries, along with the tens of thousands of local tourist attractions spread throughout the country, are included in the travel industry.

Hotels, motels, and the entire hospitality industry are also considered part of the travel and tourism industry.

2. Information Technology Industry

The IT industry is composed of virtually anything and everything related to computers, information, communication technology, and software – except for the manufacturing of necessary hardware such as computers themselves.

The whole gamut of social media – from Facebook to Twitter to Instagram and YouTube – encompasses literally millions of individual businesses. Did you know that, as of 2019, more than 30 million YouTube channels were originating in the US?

Online education, one of the most rapidly growing industries worldwide, also falls under the broad umbrella of the information technology industry.

3. Media and Entertainment Industry

Technological inventions and advancements have also created a huge expansion of the media and entertainment industry. News used to be distributed by radio stations, print newspapers, and network television channels.

The rise of cable and satellite TV has given birth to an entertainment world that contains dozens of different news channels. For example, Fox, CNN, and NBC not only provide 24-hour news programs, but they even operate separate business news channels.

Online news and information websites are far too numerous to count. There are vastly more “made-for-television” movies produced every year than the number of films produced by all the major motion picture studios and production companies.

People can spend their entire day watching online entertainment provided by YouTube or Pinterest or playing video games on their Xbox or PlayStation. Among the lucrative newer occupations are those of video game and app developers, social media consultants, and graphic website designers.

The brief descriptions above, which are nowhere close to being exhaustive, give us just a small sense of how truly massive the service sector of our economy is – and we didn’t even mention the multi-billion dollar healthcare, sports, and financial services industries.

Fintech (financial technology) businesses – another economic entity that has only come into being since the turn of the century – alone are nearly a $150 billion industry as of 2018 and are expected to surpass $300 billion in market value by 2022.

Additional Resources

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