The terms ‘public sector’ and ‘private sector’ appear frequently in the news. Reports on the pandemic, the economy and employment numbers, among other topics, often discuss how each sector will be affected by recent developments.
Exactly what are the private and public sectors, and how do they differ from each other? Read on to find out.
Follow the money
According to The Balance Small Business, a website providing guidance on entrepreneurship and management, economies of countries including the United States are divided between public and private sectors (or sections), for the purpose of considering economic activity and the contribution of each sector to the gross domestic product. The basic distinction between the two sectors? “Businesses that make a profit commonly represent the private sector, while government agencies tend to represent the public sector.”
Wall Street delineates based on ownership and governance: the public sector is the part of the economy owned, managed and controlled by government or government bodies, while the private sector is owned, managed and controlled by individuals or private companies.
In banking, ownership is determined by who owns the majority of shares in various institutions. In private-sector banks, the majority owners are private equity holders; in public-sector banks (also called government banks), the majority of the stake is owned by the government.2
Companies in the public sector receive all possible financial support from the government, even when they’re in financial trouble. In contrast, private-sector companies receive little or no financial support from the government unless an entity is deemed too large and/or systemically important, nationally, to be permitted to go under.2
What’s your business here?
Beyond ownership and funding, the two sectors are distinct in the purpose and focus of their respective businesses.
Organizations in the public sector are driven to provide basic services to the common public at reasonable cost within each industry. They aim to be self-sustainable and profitable, but profit isn’t their primary goal. Chiefly, these companies provide water, electricity, education, oil and gas utilities, mining, defense, banking, insurance and agriculture services. They tend to be less profitable than their private-sector counterparts.2
Companies in the private sector are driven to make profit while obeying the law. Think technology, banking, financial services, manufacturing, pharmaceuticals, real estate and construction. They’re profit-centered and typically more profitable than similar entities in the public sector.2
What a way to make a living
Professional life in each sector comes with tangible pros and cons.
Employees in the public sector often perform services that are consistently necessary to the public, which can help ensure job safety. Many government jobs become permanent appointments after an initial probationary period is complete. It’s relatively easy to move among public sector positions while retaining the same comprehensive benefit plans, holiday entitlements and sick pay.
1. Retrieved on May 6,2021 from thebalancesmb.com/public-sector-vs-private-sector-5097547
2. Retrieved on May 6,2021 from wallstreetmojo.com/public-sector-vs-private-sector/
3. Retrieved on May 6,2021 from indeed.com/career-advice/finding-a-job/public-vs-private-sector
In contrast to the private sector, public agencies provide a more stable work environment that’s free from market pressures. Salary levels are closely tied to government regulation, so are likely to be predictable.
In the private sector, workers tend to experience more pay increases, more career choices and greater opportunity for promotion. They also work with less job security and less comprehensive benefit plans than workers in the public sector enjoy. Working in a more competitive marketplace, in a more competitive, performance-based culture, often means longer hours in an increasingly demanding environment.4
Nonprofit organizations: the third sector
According to the Internal Revenue Service, not-for-profit organizations are ones that do not earn profits for their owners. Instead, all of their earned or donated income is used to pursue their objectives and keep their operations running.
Ranging in size and scope from the local to the international, these organizations are usually classified separately from the public and private sectors, often in a group referred to as the nonprofit sector, third sector or voluntary sector. The classification depends on each organization.1
Created to benefit the broad public interest, nonprofits are often charities or other types of public service entities, and as such, they’re not required to pay most taxes. They’re a diverse group comprised of arts organizations, healthcare services, houses of worship and community service clubs, among other concerns. In 2019, the top 100 nonprofits in this country, by revenue, included the Smithsonian Institution, the Dana-Farber Cancer Institute, Feeding America, the Nature Conservancy, the San Diego Zoo and the Kennedy Center for the Performing Arts.
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4. Retrieved on May 6,2021 from investopedia.com/terms/p/private-sector.asp
5. Retrieved on May 6,2021 from irs.gov/charities-non-profits/charitable-organizations/exemption-requirements-501c3-organizations
6. Retrieved on May 6,2021 from thenonprofittimes.com/report/npt-top-100-2019-an-in-depth-study-of-americas-largest-nonprofits/