AP Syllabus focus:
‘Sectoral structure (including formal and informal economies) and income distribution show how an economy is organized and who benefits.’
Economic structure reflects how societies organize work and production, shaping opportunities, inequalities, and overall development outcomes. Understanding sectors, informal employment, and income distribution reveals deeper geographic patterns of advantage and disadvantage.
Economic Structure and Development Patterns
Economic structure describes how a country’s workforce and production are divided among different economic sectors. These sectors—primary, secondary, tertiary, quaternary, and quinary—indicate economic complexity and the kinds of jobs available.
The Sectoral Composition of Economies
Countries at different development levels tend to have distinct sectoral profiles.
Primary sector activities involve extracting natural resources.
Secondary sector activities transform raw materials into manufactured goods.
Tertiary sector activities deliver services such as retail, health care, and transportation.
Quaternary sector activities include research, information management, and high-level decision-making.
Quinary sector activities include leadership roles in government, education, and major corporations.
Economic sectors: Categories of economic activity grouped by the type of work performed and the level of value added.
As economies grow, they typically shift from reliance on primary and secondary production toward service-dominated tertiary and quaternary sectors. This change reflects rising productivity, technological development, and increased consumer demand for specialized services. In AP Human Geography, this transition is a key indicator of how “an economy is organized,” as referenced in the specification. As economies develop, employment typically shifts from the primary sector into the secondary sector during industrialization and eventually into the tertiary and higher-order service sectors.
Workforce distribution across the primary, secondary, and tertiary sectors over the course of economic development. The diagram illustrates the long-term decline of primary employment, the middle-stage rise and fall of secondary industry, and the eventual dominance of the service sector in advanced economies. Source.
The Informal Economy
A major component of economic structure—especially in developing regions—is the informal economy, which includes work not regulated, taxed, or monitored by governments.
Informal economy: Economic activities that occur outside official regulation, taxation, and labor protections.
Informal work can account for a very large share of employment in lower-income countries, particularly where formal job opportunities are scarce. Street vending, home-based production, unregistered transportation services, and day labor are common examples. The informal sector often provides essential income for households, but it also carries risks: workers typically lack job security, legal protections, and access to benefits such as health insurance.
Informal employment is geographically patterned. It is more prevalent in rapidly urbanizing cities where population growth exceeds the capacity of the formal labor market. As industrialization proceeds, some informal workers transition into regulated employment, but many remain outside the formal system due to discrimination, educational barriers, or limited economic diversification. Informal work often takes the form of small-scale street vending, domestic services, or casual labor that operates outside formal contracts and state regulation.
Street vending as a form of informal economic activity. This image shows everyday commerce conducted outside formal regulation, illustrating how informal work provides essential income while lacking legal protections or employment benefits. Source.
Why Informal Employment Persists
Several factors push workers into informal labor:
Limited access to education or formal training
Weak state capacity to enforce regulations
Rapid urbanization without sufficient industrial or service-sector job creation
Cultural norms supporting family-based or home-based work
High demand for inexpensive, flexible services
Informality affects development because it links directly to inequality. Although it provides income, it rarely provides upward mobility.
Income Distribution and Economic Inequality
Income distribution measures how evenly or unevenly income is shared among a population. This reflects “who benefits” from an economy’s structure, as emphasized in the specification.
Income distribution: The pattern of how total income is shared among individuals or households in an economy.
Inequality can occur at multiple geographic scales—within cities, between regions, or across entire countries. In highly unequal places, rapid economic growth may benefit only small groups, particularly those employed in high-paying tertiary or quaternary sectors.
Structural Causes of Inequality
Economic structure creates different earning opportunities:
Primary-sector workers often receive low wages due to limited skill requirements, exposure to volatility in commodity markets, and rural isolation.
Secondary-sector workers may earn higher wages if industries are protected, unionized, or technologically advanced, though this varies widely.
Tertiary and quaternary workers tend to benefit from higher education and skill levels, contributing to widening wage gaps in diversified economies.
Regions with strong formal sectors usually exhibit narrower wage gaps because regulated employment enforces minimum standards. In contrast, regions dominated by informal employment typically display broader inequality. One common way to visualize inequality is the Lorenz curve, which compares the cumulative share of the population to the cumulative share of income they receive.
Linking Sectoral Structure, Informality, and Inequality
The interaction between economic sectors and the informal economy shapes patterns of inequality:
Countries with large primary sectors often struggle to generate enough high-wage jobs, reinforcing urban–rural divides.
Countries with expanding manufacturing sectors may reduce inequality temporarily by creating stable jobs, though globalization can disrupt this pattern.
Countries dominated by informal tertiary services may experience persistent inequality because most workers cannot access high-paying service industries.
Countries with strong quaternary and quinary sectors often have the highest average incomes but also face polarization between highly educated workers and low-wage service providers.
Income distribution therefore mirrors the geography of economic opportunity. Sectoral diversification, investment in formal employment, and improved education systems can help reduce unequal outcomes, but shifting structural conditions—such as technological change and global trade—continue to reshape these dynamics.
Spatial Patterns of Inequality
Geographers examine inequality through spatial data such as census records, wage statistics, and employment maps. These reveal consistent patterns:
Core urban areas often concentrate high-paying formal-sector jobs.
Peripheral urban zones may rely heavily on informal work and low-wage services.
Rural areas tied to primary production typically report lower incomes and limited upward mobility.
Global core regions have extensive tertiary and quaternary sectors, while periphery regions depend more on primary and informal employment.
Understanding how economic structure interacts with informality and income distribution helps explain why development benefits some groups more than others.
FAQ
Governments rely on indirect methods because informal workers and businesses do not report their income.
Common approaches include:
• Labour force surveys asking about unregulated or untaxed work
• Household consumption surveys, which can reveal spending inconsistent with reported income
• Tracking electricity use, transport flows, and market activity in sectors known for informality
Researchers also estimate informality by comparing national income from production data with national income from household data. Large gaps can indicate widespread unrecorded activity.
Diversification does not automatically reduce gaps because gains may be concentrated in high-skilled service or technology sectors.
Several mechanisms can preserve inequality:
• Spatial clustering of new industries in major cities
• Education and training barriers that restrict access to better-paid roles
• Uneven investment in infrastructure between regions
As a result, low-income workers may remain confined to poorly paid services or residual primary activities even as the national economy becomes more complex.
Multinational firms often create a dual labour market.
• Higher-income jobs arise in formal, globally connected sectors such as manufacturing or business services.
• Lower-income opportunities persist in local supply chains, informal services, and temporary work surrounding industrial zones.
This can widen income gaps between skilled urban workers and others, especially when profits are repatriated instead of invested locally.
Rapid migration increases labour supply faster than formal jobs can expand.
Cities may absorb migrants into informal roles such as street vending, construction day labour, or unregulated transport services.
Migrants often lack the qualifications required for formal-sector employment, reinforcing informality.
Over time, some migrants transition into formal work, but many remain in irregular employment due to saturated labour markets.
Effective strategies typically target education, labour regulation, and geographic disparities.
Policies may include:
• Expanding vocational training aligned with secondary and tertiary sectors
• Formalising small businesses through simplified licensing and taxation
• Improving rural infrastructure to reduce dependence on low-wage primary activities
• Strengthening minimum wages and labour protections
Such measures broaden access to better-quality jobs and reduce the long-term reliance on informal or low-paid employment.
Practice Questions
Question 1 (1–3 marks)
Explain why informal employment is often more prevalent in rapidly urbanising regions of developing countries.
(3 marks)
Mark scheme
1 mark for identifying a basic reason (e.g., lack of formal job opportunities).
1 mark for linking this to rapid population growth outpacing formal sector expansion.
1 mark for describing a consequence such as the need for flexible, low-barrier work or weak regulatory capacity enabling informal activity.
Question 2 (4–6 marks)
Using examples, analyse how the structure of an economy can contribute to income inequality within a country.
(6 marks)
Mark scheme
1 mark for defining or describing economic structure (e.g., sectoral composition of employment).
1 mark for explaining how primary-sector dependence can lead to lower wages and limited mobility.
1 mark for explaining how growth in tertiary or quaternary sectors may benefit skilled workers more than low-skilled workers.
1 mark for linking informal employment to widening inequality due to lack of regulation, unstable income, or exclusion from protections.
1 mark for incorporating an appropriate geographical example or comparison (national, regional, or urban).
1 mark for a reasoned, analytical connection showing how sectoral differences create uneven distribution of economic benefits.
