The tertiary industry provides services to other sectors and consumers, including healthcare, education, and entertainment. It is difficult to define, but is an important component of the economy. The industry can be vulnerable to economic performance, but is necessary for a profitable economy. There is controversy about the role of the service sector in a maturing economy.
A tertiary industry is one that provides services to other sectors of the economy – the primary and secondary sectors – as well as other tertiary industries and consumers. Sometimes difficult to define, a service industry operates within what economists call the service sector of the economy. The primary sector is occupied by those industries that extract raw materials from the earth, whether in agriculture, fishing or mining. The secondary sector converts raw materials supplied by the primary sector into products such as cars, ethanol and bacon. The tertiary sector serves all industries and the people who work in them, both by supplying products manufactured in the other two sectors and by providing services such as healthcare, accounting, education and entertainment.
The difficulty of defining any given industry sector is illustrated by the many farms that either grow fresh produce and sell it direct to the public in their shops, or utilities that generate energy as well as deliver it to customers. Is the farm primary because it grows fresh food or tertiary because it sells that food to the public? Is the utility secondary because it converts raw materials into energy or tertiary because it sells that energy? On the other hand, many industries are truly tertiary in nature, neither mining, growing or manufacturing, but contributing significantly to the economy and society. Some examples of strictly tertiary sectors are education, banking, transport services, entertainment and charitable services.
The fact that an industry is classified as a service industry does not diminish its importance in the economic overview, because a large economy requires each of the sectors to remain profitable. Historically, economies have moved from a heavy dependence on agriculture, fishing and mining, to the development of a manufacturing base, the secondary sector. The tertiary sector is always a component of the economy, but it grows with the manufacturing sector and eventually grows, as the economy focuses more and more on the different services offered by the tertiary industries.
When the economy performs poorly, employment within one service industry may be more vulnerable than others, but this is not a hard and fast rule. Education is a service industry whose employment and other measures of economic activity will respond more to changes in the population of school children than the stock market, for example. Travel and entertainment, on the other hand, is a tertiary industry that is very vulnerable to overall economic performance. As confidence in the performance of the economy wanes, consumers will refrain from discretionary spending, instead saving for the proverbial rainy day.
Some observers have noted that the tertiary sector has two components: one involved in the delivery of tangible goods and the other dedicated to the delivery of intangible goods – things like education, health care, financial services and entertainment. These are all services whose value is difficult to determine, but overall these industries comprise a significant percentage of the economy, which is why the tertiary sector is often referred to as the service sector.
There is considerable controversy among economists about the appropriate role of the service sector and the industries it includes in a maturing economy. As the primary sector consolidates and globalizes and the secondary sector loses jobs to cheaper labor in developing economies, the labor displaced from them gravitates towards generally lower-paid jobs in the tertiary sector, raising questions about the quality of life for future generations.
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