Specialisation and the division of labour

Specialisation occurs when factors of production - land, labour, capital and enterprise - perform a limited and specific role in the production process. This means that factors can be used efficiently as they play their part in the overall process.

The division of labour refers to the process of breaking up a complete job or process into smaller tasks so that each element only performs a limited role.

The division of labour and specialisation are closely interconnected concepts. Dividing up a job into smaller tasks enables the resources to be used in a specialised way and as a result become more productive.

This means that individuals, producers and whole countries will become more productive if they specialise.

Exchange

When economic processes are divided up, allowing economic agents to specialise, there is a need to exchange and trade. For example, if a farmer produces only one crop it is necessary to exchange any surplus produced in order to obtain crops and other goods and services that the farmer does not produce. The more efficient the farmer becomes in terms of producing their own crop, the more surplus will be produced, and the greater the quantity available to be traded.

Hence, specialisation, rather than self-sufficiency, creates the need for exchange, and provides a means by which resources can be used efficiently - as resources are scarce, getting more output from them is a rational strategy to improve the prosperity of individuals, producers and whole economies.

What is the alternative?

The alternative to specialisation is for factors to perform a less focused and more general role and undertake a range of tasks. For example, in terms of the use of capital, simple tools can be put to a variety of uses. A hammer can be used for many jobs, but a set of pliers is a more specialised tool, and has a limited number of uses. The more specialised the instrument or factor, the fewer the uses. In agricultural societies, individuals are commonly expected to be 'jacks of all trade' - clearing land, sewing seed, tending the land, gathering the crops, and turning the crops into food. However, in undertaking such a range of tasks they are 'masters of none'.

As Adam Smith, the founding father of economics, noted in the 18th Century, specialisation and the division of labour form the basis of the wealth of all nations. Smith also noted that exchange becomes essential if specialisation is to be successful. This means that countries would need to trade freely to gain the benefits of specialisation. As an example, he famously referred to winemaking in Scotland when he observed that:

‘..by means of glasses, hotbeds, and hotwalls, very good grapes can be raised in Scotland, and very good wine too can be made of them at about thirty times the expense for which at least equally good can be brought from foreign countries. Would it be a reasonable law to prohibit the importation of all foreign wines, merely to encourage the making of claret and burgundy in Scotland?’1

Today, all economists share Smith's view that specialisation increases output beyond that which could be achieved through self-sufficiency.

Benefits of the division of labour and specialisation

  1. Increases in the level of factor productivity with more output from a given quantity of inputs. The key to this is that specialisation allows the application of the principle of comparative advantage.
  2. Individuals will deepen their skills, and be able to earn a higher income from selling their labour.
  3. It is easier to apply technology when tasks are broken down into smaller elements.
  4. Producers will improve the quality and reliability of their products.
  5. Surpluses can be produced which enables countries to trade with other countries.

Costs of the division of labour and specialisation

  1. Labour productivity can fall if workers become bored with repetitive tasks.
  2. Workers may become dependent on other workers or on technology.
  3. Workers do not develop a full range of skills.
  4. Changes in demand for goods or services can lead to structural unemployment.

Limits on specialisation

If the benefits of specialisation are so clear, why is it not applied to all production? There are several reasons.

The size of the market might be small, and specialisation is simply not appropriate or feasible. For example, the market for piano tuners is so limited that piano tuners must be able to complete all aspects of the job. Although the task requires considerable skill, the market is too small to justify any division of labour, and piano tuners will tend be sole traders.

The skills required for some tasks may be so specific that few people are capable of acquiring these skills. Similarly, some skills are related to technology, and not all countries will have access to complex technology.

There may be a considerable time-lag between training and acquiring skills, and being able to trade successfully. In less developed countries the reward from working on the land - though small and perhaps unpredictable - will be available quickly, whereas the rewards from more specialist work will be delayed until after lengthy training.

The provision of education and training might be limited in some countries. Education and training are merit goods, and may be under-supplied, so that only countries with advanced educational systems will be able to supply the skills necessary for workers to fully specialise.

As mentioned, there is a risk of over-specialisation, which may put a limit on how much specialisation can occur.

Specialisation requires trade and exchange, but trade may be restricted as a result of barriers to trade, such as tariffs and quotas.


Comparative advantage

How does comparative advantage related to specialisation?

Comparative advantage
Economic systems

What are the costss and benefits of mixed economies?

Mixed economy
The economic problem

What is the economic problem?

The economic problem


Sources and endnotes

1. Smith, A, The Wealth Of Nations, (1776) Book IV, Chapter II, p. 458, para. 15.