What is the importance of the tertiary economic level for an economy of a country?

A nation’s 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. The continuum starts with primary economic activity, which concerns itself with the utilization of raw materials from the earth, such as agriculture and mining. From there, the distance from natural resources increases as sectors become more detached from the processing of raw materials.

Primary Sector

The primary sector of the economy extracts or harvests products from the earth such as raw materials and basic foods. 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.

In developed and developing countries, a decreasing proportion of workers is involved in the primary sector. Only about 1.8% of the U.S. labor force was engaged in primary sector activity as of 2018. This is a dramatic decrease from 1880 when roughly half of the population worked in the agriculture and mining industries.

Secondary Sector

The secondary sector of the economy produces finished goods from the raw materials extracted by the primary economy. All manufacturing, processing, and construction jobs lie within this sector.

Activities associated with the secondary sector include metalworking and smelting, automobile production, textile production, the chemical and engineering industries, aerospace manufacturing, energy utilities, breweries and bottlers, construction, and shipbuilding. In the United States, around 12.7% of the working population was engaged in secondary sector activity in 2018.

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. In the United States, about 61.9% of the labor force is tertiary workers. The Bureau of Labor Statistics puts nonagriculture self-employed into its own category, and that accounts for another 5.6% of workers, though the sector for these people would be determined by their job.

Quaternary Sector

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. 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. 

Activities associated with this sector include government, culture, libraries, scientific research, education, and information technology. These intellectual services and activities are what drive technological advancement, which can have a huge impact on short- and long-term economic growth. Roughly 4.1% of U.S. workers are employed in the quaternary sector.

Quinary Sector

Some economists further narrow the quaternary sector into the quinary sector, which 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. An estimated 13.9% of U.S. workers are quinary sector employees.

Most of us remember being asked as a child, what do you want to be when you grow up? Many of us would eagerly answer: a teacher, an engineer, a scientist. As we grew older, we realized that pursuing any of these essential jobs in the 21st century requires higher levels of education. Tertiary education has become the aspiration of more and more young people around the globe while at the same time a fundamental requirement for employment in the sectors and industries that drive development in every country.

At the World Bank, we encourage countries to strengthen their tertiary education systems to build the professional expertise necessary to drive public and private sector development; to produce the doctors, nurses, teachers, scientists, managers and so on needed to support growing economies.

We have been engaged in tertiary education reforms since 1963; currently, the Bank has an active portfolio of over US$9 billion in projects supporting post-secondary education efforts across all regions. This makes the World Bank the largest external source of funding for tertiary education in the world.

As we build upon decades of learning and experience in tertiary education reform, we continue to ask ourselves key questions to ensure we are grounding our work in the current conditions and with a focus on outcomes that can best serve our clients.  

Four of these key questions are:

1.    Should low-income countries invest public resources in tertiary education, including research, even when resources are needed to strengthen primary and secondary education as well?

Yes.  Economic research unequivocally demonstrates high rates of private and social return on investments in tertiary education, including research. The benefits include higher employment and earnings, increased productivity and innovation, greater social stability, more effective public administrations, increased civic engagement, and better health outcomes.  And these outcomes are critical for low-income countries’ development today, in the same way they were for today’s rich countries when they were much poorer 200 or even 1,000 years ago when they started investing in tertiary education. 

The consequences of underinvesting in tertiary education include loss of talent, limited access to applied research capacity needed for local problem solving, hindered economic growth due to low levels of skills in the workforce, low-quality teaching and learning at every level of education, and, perhaps most glaringly, expanded wealth inequality both within countries and among nations, with those investing more experiencing higher levels of innovation and attraction of investment. 

There is ample evidence of the role of education, including tertiary education, has played in boosting economic growth. One such example is the Republic of Korea which in 1948, was one of the poorest countries in the world. It grew to be the world’s 15th richest economy, however, by investing in and strengthening education at all levels, including providing universal access to tertiary education. Interestingly, already in the early 1980s, Korea started placing higher education in a lifelong learning context and has reaped the benefits of this decision ever since.

2.    Should digital skills and digital technologies be part of the investments made in tertiary education in low-income countries?

Yes. Digital technology and capabilities are essential to more resilient tertiary education systems. The COVID-19 pandemic has clearly revealed that digital technologies are the primary instrument for resilience in tertiary education, and that all types of tertiary education institutions will need to embrace and adapt to remote delivery and online settings. The expansion of ‘Open Universities’ around the world—including in Turkey, Tanzania, and Zimbabwe, for example—reflects the access and delivery opportunities afforded by embracing digital delivery in tertiary education. Building individual- and organizational-level digital skills can support: high-quality, adaptive teaching for students; new opportunities in digital research tools and methods; and digital competences. Without investments in digitalization and digital skills, individuals and systems will fall further behind, as has been exposed by the shifts in education delivery forced by the COVID-19 pandemic: in Sub-Saharan Africa, where over 80% of tertiary education students do not have access to reliable internet, the shift to on-line education during lockdown was not sustainable. 

3.    Will the sustained expansion of accessibility ensure the closing of equity gaps in tertiary education?

No, not without further measures including a combination of merit- and need-based approaches to student support and a diversity of other options. To date, tertiary education expansion has generally not meant equitable access—that is, more students accessing tertiary education globally has not resulted in proportionally more students enrolling from low socioeconomic status or underrepresented groups. 

To address these issues, countries need to have deliberate and sound policies to concomitantly enable access to disadvantaged groups such as means-based scholarships, grants and student loan programs, and remedial intervention to ensure readiness for postsecondary studies. Moreover, countries should foster the development of a high-quality ecosystem of tertiary education with a variety of options and flexible pathways, including high-quality, short-cycle tertiary education programs, as has been developed with long-term benefits in California, for instance, via the “Master Plan for Higher Education” and in many countries in Central and Eastern Europe, including Hungary, Slovenia, and the Czech Republic.  

4.    Should countries invest in tertiary education only after they can ensure jobs for graduates?

No. The march of technology, the emergence of big data, AI and other elements of the ‘fourth’ industrial revolution are changing the nature of production and work all over the world.  Countries with a workforce lacking the required skills are less likely to keep up with technological advancement - as well as R&D-intensive domestic or foreign investments. Moreover, there is a lag in the response in the supply of tertiary graduates to the labor market demand from firms. Investments and policy reforms to improve other important aspects of the investment climate such as infrastructure, taxes, and regulations, can take a shorter time than to produce an adequately skilled supply of graduates. While this lag may seem troubling, perceptions of social unrest increasing when there are greater numbers of un- or under-employed educated people can make some policy makers look to delaying investments in tertiary education. However, there is little rigorous evidence that bears out this anecdotal perception that improved education in environments lacking opportunities leads to unrest.  Moreover, the alternative is simply unacceptable—no country should forgo developing the skills of its people as highly as possible in a globe dominated by knowledge economies.  Limiting education results in limited development—it’s as simple as that.

Every government must be purposeful in supporting and steering its tertiary education systems, including universities, polytechnics, community colleges, and other institutions, to build the human capital vital to the 21st century knowledge economy. As hubs for advanced education and skill development in every country, regardless of GDP and income status, these institutions have the potential to produce the skilled workers and leaders needed to create stable foundations for sound governance and dynamic economic growth, and address pressing challenges like global pandemics and climate change to promote opportunities today and into the future. The World Bank will continue to advance its support for the global tertiary education sector to prepare systems and institutions for the challenges of the 21st century.

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