05/03/2024 Back to all articles

Tertiarization means a shift from the primary and secondary sectors to the tertiary sector in macroeconomics.

A sector is an area of the economy in which businesses share the same or related business activity, product, or service. Sectors represent a large grouping of companies with similar business activities.

The primary sector 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 on developing countries than it does in developed countries. For example, in 2018, agriculture, forestry and fishing comprised more than 15% of GDP in sub-Saharan Africa but less than 1% of GDP in North America.

Southern and Eastern Europe, countries like Spain, Greece, and Poland still have an important proportion of their workforce and economic output in the primary sector compared to the European average. Northern Europe, as UK and Ireland for example are more urbanized societies and economies.

Countries primarily engaged in the primary sector activities are often less economically developed but there are exceptions as countries who have oil, diamonds, emeralds.

The secondary describes the role of manufacturing. It encompasses industries that produce a finished, usable product or involved in construction. This sector usually takes the output of the primary sector, i.e. raw materials and creates finished goods suitable for sale to businesses or consumers and for export. Many of these secondary sector industries consume massive quantities of energy, require factories, and use machinery. The manufacturing produces waste materials and waste heat that may cause environmental problems or pollution. Countries such as Poland, Czech Republic, and Slovakia have a significant presence in the secondary sector. Germany is known as the industrial powerhouse of Europe, with a huge portion of its GDP coming from manufacturing.

The tertiary sector is also known as the service sector. It consists of the provision of services instead of end products. Services, also known as intangible goods, include attention, advice, access, experience and affective labour to businesses or consumers. They may include transport, distribution, and sale of goods from a producer to a consumer, as may happen in wholesaling and retailing, pest control, financial services. Or they may be transformed in the process of providing the service as in restaurants. The focus is on people and their interaction, not on transforming physical goods.

The production of information has been long regarded as a service, but some economists attribute it to a fourth sector, called the quaternary sector.

The quaternary sector of the economy is the sector associated with knowledge – based and intellectual economy. It consists of information technology, media, research and development, information-based services such as information-generation and information-sharing and knowledge-based services such as consultation, entertainment, broadcasting, mass media, telecommunication, education, information technology, financial planning, blogging, and designing. This sector has only limited and indirect connections to the industrial economy characterized by the three-sector model. It is important enough to form an additional sector and not include it in the tertiary sector.

Some definitions add the quinary sector which is an extension of the tertiary sector and includes government organizations, public services, healthcare, and education. It also includes individuals responsible for decision-making in a society: federal, state and local governments, military, healthcare professionals, education professionals, community service professionals. Domestic-based employees such as cleaning, childcare and chefs are part of this sectors.

Countries like Germany, the UK, France and the Nordic countries are leaders in these sectors.

In brief:

Primary sector: Work performed in the primary sector consists of producing raw materials and agricultural goods or extracting from the earth. Food production such as farming, fishing, agriculture, mining, drilling, forestry, harvesting, hunting.

RAW MATERIALS

Secondary sector: Jobs increased after the Industrial Revolution. The secondary sector turns raw materials into more valuable, manufactured goods. Clothing and textile industries, steel, automobile and electronics production.

MANUFACTURING

Tertiary sector: Service sector, most people you deal with daily as drivers, restaurant workers, salespeople.

SERVICES

Quaternary sector: New type of jobs based on knowledge people can provide to others. The specialized knowledge is the product. In a shoe store the salesperson is part of the Tertiary sector, the Shoes Designer with his knowledge belongs to the Quaternary Sector. Financial Services, IT, information services, research, development belong here. Most jobs in this sector require high level of formal education.

KNOWLEDGE

Quinary sector: This sector covers the highest level of services, government, healthcare, culture. Usually non-profit, serving the public. Non-profit organizations are included like NGOs and charities. Childcare, housekeeping, and nursing as well as military.

EXTENSION OF TERTIARY AND QUARTERNARY which is why some areas overlap and may be added to the Quaternary or the Quinary.

 

The evolution of these sectors and the transition form the Primary to the Quaternary and Quintenary   reflect broader trends in industrialization, technological advancement, and socio-economic changes.

Today, the primary sector accounts for a small fraction of employment and GDP in most European countries, although it remains important in some regions, especially for countries with significant natural resources or agricultural outputs.

Countries leading in the quaternary and quinary sectors are at the forefront of technological advancement, with strong ecosystems supporting innovation in IT, biotech, and clean energy.

There are regional specialisations such as the automotive industry in Southern Germany, financial services in London, or wine production in Italy and France.

Manufacturing, construction and industrial production became central to economic output and employment but since the late 20^th century many countries have seen the decline in the secondary sector´s share of GDP and employment due to deindustrialisation, the offshoring of manufacturing to countries with lower labour costs, and increases in productivity that reduce the need for labour.

With the tertiary sector income rises, the lifestyle changes, and the population is aging. With the development of information, communication and technologies this sector has been expanding. This has had enormous consequences as for economic structures, labour markets, societal norms, and the global economy:

1. Economic Growth and Diversification

• Increased GDP: The expansion of this sector contributes significantly to GDP growth as services like finance, insurance and information technology often have high value-added outputs.
• Economic Diversification: Economies with a strong service sector are more diversified, reducing dependence on traditional industries which can be more susceptible to global commodity price fluctuations.
• Employment: Job creation and thus compensating losses in the primary and secondary sectors. Automation and offshoring. Shift in labour market to more knowledge based and interpersonal skill-based jobs.

 

2. Societal Impacts

• Urbanization: the growth of the service sector leads to increased urbanization as services tend to be centralized in urban areas. This has an effect on housing, transportation, and urban planning.
• Quality of life: Services such as healthcare, education, and leisure contribute directly to the quality of life and well-being of the population.

 

3. Economic Inequality

• Wage disparity: the service sector encompasses a wide range of jobs from high-paying, skilled positions to low-wage, unskilled jobs. Income inequality can exacerbate within countries.
• Regional disparities: service industries cluster in urban and economically developed regions. Disparities between urban and rural areas as well as among regions occur.

 

4. Globalisation

• Increased global connectivity: Especially IT, finance have been at the forefront of globalisation. Services traded across borders.
• Outsourcing and offshoring: outsourcing to cheaper countries affects local job markets and fosters development in lower income countries.

 

5. Environmental Impact

• Reduces environmental degradation: compared to manufacturing and agriculture, many services have a lower direct impact in terms of pollution and depletion.
• Digitalisation and Energy Consumption: digitalisation has an environmental footprint, especially regarding energy consumption and electronic waste.

 

6. Challenges for Policy and Governance

• Regulatory challenges: services especially in areas like digital, finance and gig economy platforms pose new challenges for regulation, labour rights, and taxation policies.
• Skills and education: growing need for education systems to adapt to the demands of a service-oriented economy. The focus is on critical thinking, creativity, and digital literacy.

 

7. Workforce

• Different skills are required, development towards knowledge and information, technology, data etc.
• Broader range of salaries which leads to inequality and may lead to competition
• Jobs disappearing and creation of new jobs
• Flexibility and agility as innovation is developing fast
• Challenges due to a fast world, burnout, and being left behind

 

The “Tertiarization” has a major impact on our society. Properly analysing the development and shift of the sectors, a few questions may come up and should be answered to forecast needs and challenges in the future:

1. How are we going to cover the energy needed for further digitalisation? KI will need the quantum computer at one point. This is a political and environmental concern.
2. How do we handle e-waste in the future?
3. Employees need permanently new skills, “continuous learning” which has a cost and may and already does leave behind elder employees. We do create a further skills gap, an age bias, and a pay gap.
4. Can a healthy macroeconomy and well-being of nations be based on only the tertiary, quaternary and quintenary sector? The primary and secondary sectors are important and a solid base. A healthy macroeconomy usually relies on a balanced mix.
5. What is the material value creation in the tertiarization? Food is matter, substance. Water is matter. The basic needs of humans are food, water, air, and shelter. We need matter to survive.
6. Through inequality in access to the primary and secondary sector, the other sectors can not develop. This is a question and decisions of geopolitics.     

 

In various systems – be it ecological, economic, or social – balance is often considered a fundamental principle for sustainability and survival.

An ecological system is balanced through biodiversity and the complex interconnections between organisms and their environment. A balanced ecosystem ensures stability, productivity, and the ability to withstand and recover from disturbances. Think of the predator-prey relationship. It must be balanced to prevent overpopulation or extinction. This is also valid for mankind.

Economic stability requires a balance between sectors, supply and demand, inflation, and deflation, and import and export ratios. An imbalance can lead to economic downturns and unemployment. Stability is crucial to growth and sustainability.

Social systems benefit from balance in the form of equity, justice, and the distribution of resources and opportunities.

The impacting factors of all three systems can be found within the five economic sectors.

Balance is crucial for stability, sustainability, and a guaranteed future.

At Morgan Philips, we call it “High Tech with High Touch”.  This is a basic guideline in our work as head-hunters.

Making success stories happen.

 

by Gabriele Kamps, PR & Communications Manager at Morgan Philips