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What is the 'Private Sector'

The private sector is the part of the economy that is run by individuals and companies for profit and is not state controlled. Therefore, it encompasses all for-profit businesses that are not owned or operated by the government. Companies and corporations that are government run are part of what is known as the public sector, while charities and other nonprofit organizations are part of the voluntary sector.

The Bureau of Labor Statistics tracks and reports both private and public unemployment rates for the United States.

BREAKING DOWN 'Private Sector'

The private sector is the segment of a national economy that is owned, controlled and managed by private individuals or enterprises. Because there is little or no involvement of the government, it is sometimes also called the citizen sector. The private sector has a goal of making money and employs more workers than the public sector. A private sector organization is created by forming a new enterprise or privatizing a public sector organization. A large private sector corporation may be privately or publicly traded. Businesses in the private sector drive down prices for goods and services while competing for consumers’ money; in theory, customers do not want to pay more for something when they can buy the same item elsewhere at a lower cost.

In most free economies, the private sector makes up a big portion of the economy, as opposed to nations that have more state control over their economies, which have a larger public sector. For example, the United States has a strong private sector because it has a free economy, while China, where the state controls many of its corporations, has a larger public sector. 

Types of Private Sector Businesses 

The private sector is a very diverse sector, and makes up a big part of many economies. It is based on many different individuals, partnerships and groups. The entities that form the private sector include: 

  • Sole proprietorships
  • Partnerships
  • Small and mid-sized businesses
  • Large corporations and multinationals
  • Professional and trade associations
  • Trade unions

Even though the state may control the private sector, the government does, in fact, legally regulate it. Any business or corporate entity operating in that country must, then, operate under the laws. 

Private and Public Sector Differences

The private sector employs workers through individual business owners, corporations or other nongovernment agencies. Jobs include those in financial services, law firms, newspapers, aviation, hospitality or other nongovernment positions. Workers are paid with part of the company’s profits. Private sector workers tend to have more pay increases, more career choices, greater opportunities for promotions, less job security and less comprehensive benefit plans than public sector workers. Working in a more competitive marketplace often means longer hours in a more demanding environment than working for the government.

The public sector employs workers through the federal, state or local government. Typical civil service jobs are in healthcare, teaching, emergency services, armed forces and city council. Workers are paid through a portion of the government’s tax dollars. Public sector workers tend to have more comprehensive benefit plans and more job security than private sector workers; once a probationary period concludes, many government positions become permanent appointments. Moving among public sector positions while retaining the same benefits, holiday entitlements and sick pay is relatively easy while receiving pay increases and promotions is difficult. Working with a public agency provides a more stable work environment free of market pressures, unlike working in the private sector.

Private and Public Sector Partnerships

The private and public sectors sometimes work together while promoting common interests. Private sector businesses leverage governmental assets and resources while developing, financing, owning and operating public facilities or services. For example, a private company might pay a state a one-time fee to operate a specific length of freeway for a set time in exchange for revenue from tolls.

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