7.2 Economic Sectors and Patterns

Textbooks draw the line between quaternary and quinary in slightly different places; what matters is that both are high-skill, knowledge-based work.

In lower-income countries, a large share of workers are in the primary sector. In Ethiopia and Niger, for example, most workers are in agriculture, according to World Bank and ILO estimates. As countries industrialize, workers move into the secondary sector, as in Britain in the 1800s or China after 1980. In high-income countries, most jobs are in services. In the United States, fewer than 2 in 100 workers farm, and the large majority work in tertiary and higher sectors.

These shifts happen because machines make farming and manufacturing more productive (so fewer workers are needed), and because people spend more on services as incomes rise. Comparing sector shares is a quick way to compare development levels (7.3).

Alfred Weber (1909) argued that a manufacturer chooses the location that keeps total costs lowest. He focused on three factors:

• Transportation: the biggest factor. A bulk-reducing (weight-losing) industry, where the final product weighs much less than the inputs, locates near its raw materials: copper smelters near mines, sugar mills near cane fields, paper mills near forests. A bulk-gaining (weight-gaining) industry, where the product gets heavier or bulkier, locates near its market: soft drink bottlers add local water to syrup, so they build near customers.
• Labor: a location with much cheaper labor may be worth extra transport costs, especially for labor-intensive industries like clothing. This is one reason much assembly work has moved from core countries to semi-periphery and periphery countries like Mexico, Vietnam and Bangladesh (7.7).
• Agglomeration: firms gain from clustering near related firms, sharing skilled workers, suppliers and ideas.

Weber assumed fixed resource and market locations, uniform transport costs and profit-maximizing managers. Today, government incentives, taxes, worker skills, quality of life and access to fast internet often matter as much. Many modern industries, like software, are footloose, meaning they aren't tied to raw materials and can locate almost anywhere.

Break-of-bulk points are places where goods are transferred from one mode of transport to another, such as from ship to rail or truck. Ports like Rotterdam, Singapore and Shanghai, the world's busiest container port, attract industry because goods are already being unloaded there. Containerization, standardized steel boxes first used commercially in 1956, slashed the cost of transferring cargo and made global supply chains possible.