The production sectors They are the areas of the economy in which companies share the same related product or service. They can also be thought of as industries or markets that share common operational characteristics. Dividing an economy into different sectors of production allows a deeper analysis of the economy as a whole.
The economy of a nation can be divided into several sectors of production to define the proportion of the population that participates in different activities. This categorization represents a progressive distance from the natural environment.
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A classic breakdown of economic activity distinguishes three main production sectors of the economy:
At first, an economy will be based essentially on the primary sector, being food production and agriculture the main source of employment for people.
As an economy develops, improved technology allows less labor to be needed in the primary sector and allows more workers to produce manufactured goods in the primary sector. secondary production sector.
Later development allows the growth of the tertiary production sector, of services and leisure activities.
In the last 100 years, developed economies have seen the transition from an economy based on manufacturing to one where the service sector or tertiary sector dominates.
Although many economic models divide the economy into only three sectors of production, others divide it into four or even five sectors. These last two sectors are closely linked to tertiary sector services.
Investors use production sectors to place stocks and other investments in categories such as technology, healthcare, energy, utilities and telecommunications..
Each production sector has unique characteristics and a different risk profile that attracts a specific type of investor. As a result, it is common for analysts and other investment professionals to specialize in certain sectors of production..
The old economy was built mainly on the basis of subsistence agriculture.
The Industrial Revolution diminished the role of subsistence agriculture, converting land use to more extensive and specific forms of agriculture. Economic growth occurred mainly in the mining, construction and manufacturing industries.
In the economies of modern consumer societies, services, finance and technology play an increasingly important role.
Making use of natural resources can be a way for an economy to generate export earnings.
The sale of oil, gas and other natural resources has enriched many developing economies, allowing them to raise capital to invest in public services within the economy..
One problem with relying on the primary sector is that wealth is often unevenly distributed. A small number of firms gain monopoly power over the production of raw materials and pay workers only a small fraction of the income earned.
Many developing countries have remained poor, despite being rich in raw materials. A large primary sector is not enough on its own to lead to economic development.
Primary products are susceptible to being volatile both in price and in production. Commodities, such as oil and foodstuffs, can have large variations in price. Demand is quite inelastic.
If prices drop, countries that are based on a particular industry may see a big drop in revenue, causing problems..
If primary products are very profitable, resources will be diverted from manufacturing industries and concentrated only on primary industries.
The problem is that when raw materials run out or industry shrinks, the economy needs broad diversification. This can be known as the "Dutch disease" or the curse of resources..
Economic development will allow raw materials to be more refined, so that products with greater added value are produced.
Manufacturing goods requires greater human capital and also better technology to be able to use raw materials and produce a finished product..
The UK economy was largely based on agriculture until the 18th century. However, with the advancement of new techniques, such as the steam engine, a vertiginous industrialization was achieved, allowing the promotion of the secondary sector.
Economic development prompted people to abandon work on the land to go to work in new factories that sprung up across the UK. The manufacturing sector became the largest component of the country's economy.
- Allows higher income. Higher income elasticity in manufacturing demand.
- Diversify the economy so as not to depend on primary products.
- With higher value added, manufacturing allows higher real wages than agriculture.
- Enables countries to specialize and benefit from economies of scale.
- Pollution generated by the production process.
- By working in boring and repetitive factories, workers can become alienated.
- Developing economies may lack the necessary human capital and must import workers and machines, which could be very costly.
- Landlocked countries will find it harder to export goods.
A growing tertiary sector is often a sign of rising living standards, allowing consumers to enjoy more leisure-based service activities such as tourism, sports and restaurants.
Better technology and labor productivity have allowed higher yields of manufactured and agricultural products, with less labor. This increased performance has led to:
- An increase in workers' income to spend on services.
- Available manpower to be able to work in the most labor-intensive tertiary sector.
Globalization and free trade have allowed the economies of developed countries to import more manufactured goods. Therefore, a growing proportion of the economy can be devoted to the higher value service sector.
Increased globalization has also allowed more services to be exchanged, for example cross-border information technologies. Support is much easier with the internet.
The rise in real wages has allowed for a drop in the average work week. In 1850, the average job took 60 hours, leaving little time for leisure activities.
This average workweek has dropped to 35 hours, leaving more hours for leisure activities.
New technology has allowed the development of new industries in the service sector. In the last 100 years, computers and telephones have been developed. The growth of the Internet has allowed a new range of tertiary services.
A potential problem in the tertiary sector is that service sector industries are often more difficult to export. A country with a large service sector may run a current account deficit by importing manufactured goods and financing the deficit by attracting capital inflows..
The primary sector is sometimes known as the extraction sector, because it involves the extraction and production of raw materials and staple foods.
It can be renewable resources, such as fish, corn, wool, iron and wood, or it can be the use of non-renewable resources, such as oil or coal extraction. A farmer, a coal miner or a fisherman would be workers in the primary sector.
In both developed and developing countries, a decreasing proportion of workers is involved in the primary sector.
Only about 2% of the U.S. workforce is engaged in primary sector activity today, a dramatic decline since the mid-19th century, when more than two-thirds of the workforce was made up of primary sector workers..
Activities associated with primary economic activity include:
- Agriculture (both subsistence and commercial).
- Mining.
- Forestry.
- Grazing.
- Oil exploitation.
- Fishing.
Also called the manufacturing sector, it is concerned with the production of finished products from raw materials extracted by the primary production sector..
It involves the transformation of raw or intermediate materials into goods; for example, turning steel into automobiles, or textiles into clothing. A builder and a dressmaker would be secondary sector workers.
All manufacturing, processing and construction jobs are within this sector.
The manufacturing industry takes raw materials and combines them to produce a higher value-added finished product. For example, sheep's wool can be spun into better quality wool. This yarn can be threaded and knitted to produce a wearable vest.
The secondary sector forms a substantial part of GDP, creates values (goods) and is the engine of economic growth. It is crucial for all developed economies, although the trend, in most developed countries, is the predominance of the tertiary sector.
In the United States, just under 15% of the workforce is engaged in secondary sector activity.
Initially, the manufacturing industry was based on a labor-intensive “cottage industry”, for example, the turning of a hand. However, the development of improved technology, such as spinning machines, allowed the growth of larger factories..
Benefiting from economies of scale, they were able to reduce the cost of production and increase labor productivity. Higher labor productivity also allowed for higher wages and more income to spend on goods and services.
Among the activities associated with the manufacturing sector or secondary sector are the following:
- Automotive.
- Electrical industry.
- Chemical industry.
- Food production and processing.
- Power industry.
- Metallurgical industry.
- Small craft production workshops.
- Construction industry.
- Glass industry.
- Oil refinery.
- Textile and clothing industry.
- Consumer goods industry (all consumables).
The tertiary or service sector is responsible for offering intangible goods and services to consumers and companies. A merchant and an accountant would be workers in the tertiary sector.
This sector sells the goods produced by the secondary sector. It also provides commercial services both to the general population and to companies in the five economic sectors..
The service sector has grown due to higher labor productivity and higher disposable income. This higher income allows greater spending on "luxury" service items, such as tourism and restaurants..
In most developed and developing countries, an increasing proportion of workers are engaged in the tertiary sector. In a developed economy, the service sector is the largest component of the economy, comprising almost 80% of GDP and a similar share of employment.
During the 20th century, economists began to suggest that traditional tertiary services could be further subdivided into quaternary and quinary service sectors..
A coffee shop is an example of the service sector. It makes use of coffee beans (raw material-primary sector) and manufactured products (cups, saucers and coffee machine). Examples from the service sector include:
- Retail and wholesale trade.
- Computers and information technology services.
- Hotels and tourist services.
- Media.
- Restaurants and Cafes.
- Transportation and distribution: rail, bus, air, sea.
- Communications.
- Administrative, banking and insurance services.
- Food and beverage services.
- Medical care.
- Postal services.
It is also known as the knowledge sector. It is said to be the intellectual aspect of the economy. It is mainly related to the service sector, but it is also related to the high-tech component of manufacturing.
It allows entrepreneurs to innovate in better manufacturing processes and improve the quality of services offered in the economy. These services and intellectual activities are what drive technological advancement, which can have a great impact on economic growth in the short and long term..
This is the component of the economy based on human capital. Activities associated with this sector include government, libraries, scientific research, education, and information technology development..
Some economists further subdivide the quaternary sector into the quinary sector, which includes industry related to human services, and the higher levels of decision-making in a society or economy..
This includes the government that passes the legislation. It also comprises the main decision makers in industry, commerce and also in the education sector..
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