For decades, economists grouped jobs into three large categories that included almost all types of work. People either extracted raw resources (farming and mining), processed these materials into usable goods (manufacturing and building), or provided services (teaching and medicine). The category of providing services grew so large that economists divided it further, based on the type of services provided.

Geographers have focused on why some sectors of work are dominant in some regions and other sectors dominant in other regions. Why is any economic activity where it is? As part of this, they use locational analysis to evaluate the optimal location for a business to build a factory or other place of employment. For example, at a global scale, they study why most people in Ethiopia work in the extraction sector while most people in the United States work in the service sector. At the local scale, they study why one city has more jobs in software development than another.

Economic Sectors

Today, economists commonly divide a country’s workforce into five sectors. The three main sectors are primary, secondary, and tertiary, with quaternary and quinary being additional sectors that were once part of the tertiary sector.

Employment Sectors and Economic Development

In 1800, nearly everyone in the United States worked in the primary sector, mostly in agriculture. As the country industrialized, the agricultural sector became mechanized and efficient enough to free up workers for other jobs, and the demand for people in the secondary sector increased. The primary sector began to decrease. Today, it is less than 5 percent. Employment in the secondary sector grew until it reached a peak in the 1950s, when it began to decline. Since then, the economy has become postindustrial. (See Topic 7.6.) That is, most job growth has been in the tertiary sector. The shifts in the U.S. economy reflect what has happened in most highly industrialized economies today.

Because the distribution of labor by sector reflects industrialization, countries today have very different mixes in their economies. The following graph shows the percentages of people employed in each of the three sectors for Ethiopia, China, and the United States.

The Multiplier Effect

As part of this shift, countries become wealthier because wages in the secondary sector are higher than those in the primary sector. In addition to higher wages, the secondary sector jobs also have a large multiplier effect, the potential of a job to produce additional jobs. The secondary sector has the greatest multiplier effect of all the sectors. For example, when an auto manufacturer expands a plant and adds 100 new jobs in a community, the new workers will have more money to spend on food, clothes, and movies, leading to the expansion of other businesses and jobs. Economists estimate that every dollar of demand for manufacturers’ goods generates $1.92 of demand for other services and products. In comparison, the respective figures for retail and wholesale activities are $0.54 and $0.58.

The multiplier effect also works in reverse. For example, over the past four decades in Flint, Michigan, General Motors has shut down several plants. Because of the reverse multiplier effect, far more people than just GM workers lost their jobs.

Governments in deindustrializing regions often attempt to replace lost manufacturing jobs with new quaternary and quinary jobs. Both types of jobs pay higher-than-average wages, and both can have a multiplier effect. Pittsburgh has used quaternary jobs to drive its rapidly growing economy. As research and high-tech jobs flowed in, entertainment, tourism, and education grew. One challenge of shifting from manufacturing to quaternary jobs is that many of the displaced workers do not possess the skills required for the new jobs. As a result, the displaced workers may end up in the expanding tertiary sector, but usually at less pay than both secondary and quaternary sector jobs.

Theories on Industrial Location

Weber’s Least Cost Model

In 1909, the secondary sector was growing rapidly in Europe and the United States. German economist Alfred Weber developed an influential theory, known as the least cost theory, to explain the key decisions made by businesses about where to locate factories. Weber proposed that factory owners would locate their factories where they could minimize their total costs by balancing three factors:

• minimizing transportation costs, such as getting raw materials to the factory and moving finished products to where they will be sold
• minimizing labor costs, such as the wages and salaries of employees
• maximizing agglomeration economies, the spatial grouping of several businesses to share costs, such as an access road to a public highway or development of a workforce with special skills

The Locational Triangle

Weber’s model can be shown with a locational triangle. The three points of the triangle are the market for a good and two resources needed to make the good.

Bulk and Industrial Location

Transportation costs were often closely related to the bulk (weight and size) of the objects being transported. Weber observed that some raw materials lose bulk during processing and some do not. For example, copper is embedded in heavy rock when first mined, but it loses bulk as it is processed. So copper production is an example of a bulk-reducing industry. These types of industry are also known as weight-losing, raw material-oriented, or raw-material-dependent industry.

Since transporting the extracted material is more expensive than transporting the finished product, a company can save money by moving production close to the sources of that raw material. It does not need to pay the cost of shipping the full weight of the material when only part of it is needed. Most mining, lumber, and agricultural industries are bulk-reducing. This helps explain why states known for their agriculture, such as Iowa, often have a significant number of jobs in food processing facilities.

In contrast, soft drinks become bulkier as processing occurs. The heaviest component of a soft drink is water. Since water is ubiquitous (widely available), companies try to add it as close to the market as possible, rather than pay to ship the weight of the water. These factories usually locate close to the market and are considered bulk-gaining industries (or weight-gaining, market-oriented, or market-dependent industries).

Products are commonly made of multiple bulk-reducing raw materials. Based on a locational triangle, these relationships can be identified:

• The manufacturing site (D) will be somewhere between the locations of the two raw materials (B and C).
• The intermediate location will be closer to the one that loses the greater percentage of its weight (C in this case).
• The finished product would then be shipped directly from the processing facility (D) to the market (A).

Sometimes the cost savings from either cheaper labor or from agglomeration economies could be greater than the savings derived from locating at the cheapest spot relative to transportation costs. In these cases, Weber recognized that business owners would benefit by locating where these other costs were less.

Applying Weber’s Theory

Like other models that simplify reality, Weber’s model had the benefit of focusing attention on key parts of a complex process. However, this benefit came with limitations. In response to these limitations, later scholars refined Weber’s model by adding other considerations to it. However, the basic model remains useful. It recognizes patterns that can help people make decisions about the spatial distribution of factories, offices, and all types of business that employ workers.

Labor Costs

Weber’s original least cost model did not differentiate among different types of labor. A company in a labor-oriented industry, or labor-dependent industry, is highly dependent on a workforce and will want to be near a source of those workers. Companies more dependent on a large quantity of labor will try to locate near a community with an available potential workforce. High-tech companies that depend on highly skilled workers in the computer or engineering fields often locate close to major universities.

Importance of Energy

The history of manufacturing demonstrates the importance of a source of power for machinery. The type of power influenced where factories were built:

• Waterpower was not mobile, so early mills and factories were located on streams and rivers.

• Coal could be transported, so companies had wider options about where to locate factories. However, coal is bulky and expensive to transport. So, companies that needed vast quantities of coal also tried to locate near coalfields. Coal could also power a mobile engine, which made railroads practical. Companies became less dependent on water transportation.
• With the development of electricity in the late 19th century, power became even more mobile. It could move through wires at low costs for hundreds of miles so, the location of energy sources became less important.

Aluminum production relies on the raw material of bauxite, but it is an energy-oriented industry. Companies locate processing plants near low-cost sources of energy and ship the bauxite to the plant rather than process it near a mine where energy costs are high. Low-cost hydroelectricity in Canada and geothermal-electricity in Iceland results in large-scale aluminum processing in both countries.

Bulk, Containerization, and Transportation

The cost of shipping materials decreased dramatically in the last two centuries because of improved technology and methods. As the following table shows, various modes of transportation have various benefits.

In addition to new technology, people have developed systems for speeding up the break of bulk, the procedure of transferring cargo from one mode of transportation to another. This is achieved through containerization, the system in which goods are loaded into a standardized shipping unit. The containers are intermodal, meaning they can be carried on a truck, train, ship, or plane.

For example, a container might be loaded in a computer factory in China and not unloaded until after it has been carried by train to a port on the coast, transported across the ocean to the United States on a ship, taken by a truck to Dallas, and then finally delivered to a warehouse. By making transportation more efficient, additional regions of the world have been involved in the global trade network.

Significance of Government

Government policies and political stability influence location decisions in many ways. Tax dollars pay for much of the transportation network. Companies prefer to locate in countries and communities that are safe and peaceful, and have predictable enforcement of laws and regulations. Additionally, governments from the local to the national scale offer tax breaks, subsidies, and other incentives to encourage companies to locate their factories in specific areas.

Other Locational Considerations

One refinement to Weber’s theory has been to allow for differences in industries. For example, the cost of raw materials is more influential for a steel plant than it is for a factory making high-end clothing.

Businesses use a hierarchy of locational factors in choosing where to build. The table below uses the example of a new factory being constructed in the United States that will market its product both nationally and globally. The primary location factors are used to pick a general region of the country (e.g., Southeast or state). Secondary factors are used to narrow down the location to a more specific location, such as a particular metropolitan area. Finally, another group of factors may be used to determine the exact site of the factory within a particular metropolitan area.

Additional Locational Considerations

In addition to the factors described above, other factors can shape locational decisions of other sectors of the economy. These refinements show how companies have become more flexible about their locations.

• Online Businesses: The development of high-speed internet service greatly increased online retail selling. Since some businesses don’t rely on face-to-face interactions, they can be based anywhere. However, the location of distribution centers that fulfill orders need access to transportation systems and markets.
• Companies that provide informational services, such as call centers, can locate their offices anywhere with good communications systems and a group of trained people who speak the language of their customers. Over the past two decades, hundreds of call centers that serve U.S. customers have been built in rural areas of the United States and Canada, as well as in low-wage countries such as India and the Philippines. However, because locational demands are minimal, these businesses are footloose, meaning they can pack up and leave for a new location quickly and easily.
• Prestige: To signal its prominence and wealth, a corporation might want to locate its main office for its top executives on the expensive upper floors of a skyscraper in a large city. These types of spaces, known as front offices, are designed to impress clients. However, the company might decide to locate the rest of its employees in less expensive office spaces, known as back offices.

Wallerstein’s World Systems Theory

Economic historian Immanuel Wallerstein developed what is known as World Systems Theory. He grouped countries into three categories:

• Core countries are highly industrialized and wealthy. Examples include the United States, Japan, Australia, and most of Europe. They have strong government support for economic growth, so businesses often locate their quaternary and quinary sector workers in these countries.
• Semiperiphery countries are those in the process of developing industry but are less wealthy than core countries. Examples include China, India, Brazil, and Mexico. Companies often locate factories in semiperiphery countries. As these countries develop, skills and wages increase, so they add more tertiary sector jobs and lose secondary sector jobs to lower-wage countries.
• Periphery countries are more reliant on producing raw materials than on industry. Examples include Bangladesh, Bolivia, Cambodia, and most countries in Africa. Poor infrastructure makes it difficult for these countries to attract jobs in any sector other than the primary sector.