The 5 Sectors of the Economy

Economy

Human activities that generate income are known as economic activities which then contribute to form a nation’s economy. In the economy, industry and commerce are divided into different areas, called sectors. This term can be derived from the Latin word “sector” and literally means “something that cuts”. A sector is therefore a section or an area. An economy can be divided into sectors to define the proportion of a population engaged in different activities. This categorization represents a continuum of distance from the natural environment.

Economic activities are broadly grouped into primary, secondary, tertiary activities. Although many economic models divide the economy into only three sectors, others divide it into four or even five. These two sectors are closely linked with the services of the tertiary sector, which is why they can also be grouped into this branch.

Main sectors of the economy are:

1. Primary sector

The primary sector of the economy comprises the original production, also called primary production. This means that in this area, the raw materials are extracted and delivered for further processing. So, it is concerned with the utilisation of earth’s resources such as land, water, vegetation, building materials and minerals. Activities associated with primary economic activity include agriculture (both subsistence and commercial), mining, forestry, grazing, hunting and gathering, fishing, and quarrying. The packaging and processing of raw materials are also considered to be part of this sector.

People engaged in primary activities are called red-collar workers due to the outdoor nature of their work.

2. Secondary sector

This is also called the industrial sector. As the name suggests, the focus is on the industry. This is where the raw materials from the first sector are processed. This sector produces finished goods from the raw materials extracted by the primary economy. It includes activities that add value to natural resources by transforming raw materials into valuable products. Secondary activities, therefore, are concerned with manufacturing, processing and construction industries. They include metalworking and smelting, automobile production, textile production, the chemical and engineering industries, aerospace manufacturing, energy utilities, breweries and bottlers, construction, and shipbuilding.

People engaged in secondary activities are called blue-collar workers.

3. Tertiary sector

The tertiary sector of the economy is also known as the service industry. This sector sells the goods produced by the secondary sector and provides commercial services to both the general population and to businesses in all five economic sectors. Activities associated with this sector include retail and wholesale sales, transportation and distribution, restaurants, clerical services, media, tourism, insurance, banking, health care, and law. In most developed and developing countries, a growing proportion of workers is devoted to the tertiary sector.

People engaged in tertiary activities are called white-collar workers.

4. Quaternary sector

The fourth sector of the economy, the quaternary sector, consists of intellectual activities often associated with technological innovation. It is sometimes called the knowledge economy. Quaternary activities are specialized tertiary activities in the ‘Knowledge Sector’ which demands a separate classification. There has been a very high growth in demand for and consumption of information-based services from mutual fund managers to tax consultants, software developers and statisticians. Personnel working in office buildings, elementary schools and university classrooms, hospitals and doctors’ offices, theatres, accounting and brokerage firms all belong to this category of services. Like some of the tertiary functions, quaternary activities can also be outsourced. They are not tied to resources, affected by the environment, or necessarily localised by market.

5. Quinary sector

This sector includes the highest levels of decision-making in a society or economy. This sector includes top executives or officials in such fields as government, science, universities, nonprofits, health care, culture, and the media. It may also include police and fire departments, which are public services as opposed to for-profit enterprises.

Economists sometimes also include domestic activities (duties performed in the home by a family member or dependent) in the quinary sector. These activities, such as child care or housekeeping, are typically not measured by monetary amounts but contribute to the economy by providing services for free that would otherwise be paid for. These are called gold-collar professions.