Introduction

Gross domestic product consists of a wide array of activities, and the structure of those activities has changed over time as the European economy has developed. Economists have long classified activities on the basis of a distinction between agriculture, industry, and services, although there has been less than complete agreement on which occupations to include in each sector (Clark 1951). In this chapter we will follow the modern European convention of including forestry and fishing together with farming as “agriculture,” and include mineral extraction together with manufacturing, construction, and gas, electricity and water, in “industry.” Services then covers all other activities, including transport and communications, distribution, finance, personal and professional services, and government. We will examine the development of the three main sectors and also consider the effects of the major structural shifts, as the share of the labor force declined in agriculture and increased in industry and services between 1870 and 1914.

For an economy to have high living standards, it is necessary to have high productivity in all sectors. However, it is also clear that the structure of the economy matters, because value added per worker is higher in some sectors than in others. Since agriculture has historically tended to be the lowest value-added sector, the share of the labor force in agriculture turns out to be a very good predictor of per capita income.