What’s it? The tertiary sector includes service businesses. These businesses perform tasks or other work to help others. Their services are essential for supporting other sectors of the economy, including the primary and secondary sectors.
Service companies may serve individual consumers, such as when you stay at a hotel or shop at a retail store. Others may focus on other businesses or organizations, such as corporate banking services.
This sector has many areas: trade, retail, transportation, and warehousing. The financial industry, such as banking, insurance, and pension funds, is also included in the tertiary sector. Health care, recreation and tourism, and entertainment are other examples.
The significance of the tertiary sector
Answering the above question requires us to look at several things. First, the relationship between the primary sector and other sectors. The tertiary sector is crucial because it provides services to businesses in the primary and secondary sectors.
For example, mining, car, or food manufacturers need insurance services from the tertiary sector to protect their businesses and employees. They may also rely on bank loans for working capital or investment. In addition, car manufacturers or food producers rely on trading services to sell their products to consumers.
Second, we can see why the tertiary sector is important because of its contribution to GDP. The output of the tertiary sector, measured by the added value generated, contributed 64% of the world’s GDP in 2021, or much higher than the manufacturing sector.
Third, the service sector created 51% of the jobs in the economy in 2021, an increase of dramatically from 35% in 1992.
The tertiary sector is where the majority of people in developed countries work. This sector accounted for 79% of total employment in the United States in 2021. The figure is slightly higher in the UK (81%).
Fourth, its contribution to international trade – and therefore foreign exchange reserves for the economy – is also significant. According to the International Monetary Fund, world services exports reached $7.03 trillion in 2022. This figure has increased seven times compared to 1992 ($1.03 trillion).
Tertiary sector examples
The tertiary sector encompasses a broad range of economic activities. They all play a vital role in the economy. These service businesses provide support to other sectors and directly serve consumers. Here’s a breakdown of some key categories within the tertiary sector:
Finance: This category includes institutions that manage money on behalf of individuals and businesses. Examples include banks, insurance companies, and investment firms. Banks accept deposits and provide loans, while insurance companies offer protection against financial losses. Investment firms manage assets and help clients grow their wealth.
Distribution and communication: This category involves businesses that facilitate the movement and exchange of goods and information. Examples include transportation companies (railroads, airlines, trucking), warehousing facilities, retailers, and wholesalers. Retailers sell products directly to consumers, while wholesalers sell products in bulk to other businesses.
Business and professional services: This category includes businesses that provide specialized services to other businesses. Examples include consulting firms, advertising agencies, and legal services. Consulting firms offer expertise and advice on various business matters. Advertising agencies create and manage marketing campaigns to promote products and services. Legal services provide representation and guidance on legal issues.
Social services: This category includes businesses that provide services essential for public well-being. Examples include educational institutions, healthcare providers, hospitality businesses (hotels, restaurants), and tourism agencies. Educational institutions offer learning opportunities, while healthcare providers diagnose and treat illnesses. Hospitality businesses provide accommodation and food services, and tourism agencies help people plan and book vacations.
The shift from primary and secondary sectors
A country’s economic structure generally develops from the primary to the secondary sector and then towards the tertiary sector. In its early stages, the economy is traditional and relies heavily on the primary sector.
Later, as the economy developed and industrialization took place, the secondary sector began to take on a more significant role. New factories were established to process raw materials from the primary sector. Rapid growth in the secondary sector then spurred the growth of the service sector—such as trade, transportation, and financial services.
Finally, when a country becomes a developed country, its economy relies more and more on the service sector. Developed countries like the United States are now relying more on services and starting to outsource their production to countries with low wages or close to raw materials. They can exploit the tertiary and quaternary sectors as significant contributors to their output and employment.
Businesses like Apple and Samsung are establishing themselves to operate in the service sector. They then outsourced their production activities to other manufacturers, such as Foxconn.
Apple and Samsung realized more added value in the tertiary sector. Instead of engaging in manufacturing production, they can make more money by focusing on serving customers through innovation and selling their services.
Finally, the next transition is towards the quaternary sector. The classification separates the quaternary sector from the service sector. Although both offer services, the specific quaternary sector focuses on information technology and research and development (R&D) services.
Tertiary sector in developed vs. developing countries
The transition to the tertiary sector marks how a developing country from a less developed country becomes a developed one. At least developed countries depend on the primary sector.
Meanwhile, developing countries usually begin to industrialize. Thus, the secondary sector began to take a more significant role in output and employment. In addition, industrialization encourages urbanization, where residents move to growth centers where production facilities are located.
Then, when a country transitions from developing to developed, the service sector grows significantly. Service businesses begin to dominate output and employment. As progress begins towards a mature stage—as in the United States—the quaternary sector is expanding.
The transformation from a less developed country to a developed one is ideal. However, in reality, some countries may grow differently than expected. Some countries are still developing even though the service sector has increased.
Then, even though the service sector has the highest added value, the primary and secondary sectors are by no means less important. In contrast, the four sectors above are interrelated but in a broad area, namely, global. This then drives what we refer to as globalization.
Globalization makes the economic sectors between countries interrelated. Their relationship forms an interconnected global production chain. It is supported by multinational and transnational companies.
The workforce of the tertiary sector
The tertiary sector demands a workforce with a different skill set compared to the primary and secondary sectors. Here’s a breakdown of the key differences:
- Higher skill levels: Jobs in the tertiary sector generally require a higher level of education and training than those in the primary and secondary sectors. This can include formal education (degrees, diplomas) or non-formal training and certifications.
- Knowledge-based focus: Tertiary sector workers rely heavily on knowledge and problem-solving skills. They may need to analyze information, communicate effectively, and adapt to changing situations.
- Skill spectrum: While the overall skill level is higher, the tertiary sector encompasses a wide range of jobs. Some service positions, like waitressing, require less specialized skills. However, the sector also includes highly specialized professions demanding advanced knowledge (e.g., finance, healthcare).
Important note: The “brain” skills required in the tertiary sector are distinct from those needed in the quaternary sector. While both emphasize knowledge, the quaternary sector focuses specifically on high-tech fields and research and development.
