As economies develop from their agrarian roots into modern societies, they invariably go through a similar transition.
Agriculture: First, everyone works in the primary sector—agriculture—simply to survive. Food comes first.
Industry: As subsistence farming becomes more productive through innovation, some labor is free to engage in other productive activities. And this secondary, industrial sector rises in importance, with manufacturing as a major component. Consider the Industrial Revolution!
Services: Finally, as productivity in the industrial sector also improves, labor can be devoted more and more to the tertiary, services sector. It doesn’t produce anything tangible, but services are clearly still useful.
The FRED graphs in this post show the fraction of the labor forceRead More »