Division of Labor

What is Division of Labor?

Division of labor as an economic concept involves dividing the production process into different stages—which allows workers to focus on particular tasks, as well as the development of skills specific to those tasks.

As first studied by Adam Smith, David Ricardo, and Karl Marx, the Division of Labor refers to novel forms of specialization separating the production process into compartments, each worker performing different tasks.

In Smiths famous pin factory example of the advantage of division of labour, a scenario is painted where each worker makes an entire pin from start to finish. One worker has to learn all the necessary skills to finish the pin (i.e., cutting, sharpening, stamping, and soldering).

However, if four workers in a coordinated effort divided the production process among themselve to produce one pin—one worker cutting, one sharpening, one stamping, and another soldering—they could produce more pins in the same amount of time. As the workers learn their skills better, they produce even more pins.

The modern economy is characterized by a high and ever-increasing degree of specialization. Adam Smith’s 1776 treatise on the division of labor concerned the wealth of all nations and became the seedbed of modern theories. Smith explained how the British economy was achieving increased productivity Opens in new window through the division of labor. Since then, the process of division of labor has been continuing apace.

The emerging industrial form of production, Smith argued, entailed the erosion of artisan skills and their replacement not by collaboration among several craftsmen, but by coordination among a large number of people carrying out specific, assigned activities, enabling any one person to do work of many.

The combined labor of a workforce in a single establishment outstripped the total effort of individual workers in the old system. Considering Smith’s famous pin factory, each worker became specialized in a specific facet of the production process and, as a result, the factory achieved far greater output than would have been possible if each worker had tried to make a pin from start to finish.

Division of Labor Fosters Specialization

Division of labor or the splitting up of a task fosters specialization and ultimately culminates in increased productivity (output per unit of input).

As the workforce specialize, they become better at performing their tasks, exploiting their existing comparative advantage Opens in new window (ability to produce at a lower opportunity cost) and developing more advantage as they learn by doing. In addition, they develop new technology, which allow them to produce the same output amount with far fewer inputs.

Consider what life would be like without specialization and division of labor. You’d have to grow all your food, provide all your transportation, and build your living space. You’d need a lot of skills just to have the basic necessities. Keeping up with your daily needs would be a challenge.

Now consider life with specialization. A dairy farm produces the milk you need. You don’t have to know how it is produced, just where to buy it. You buy, rather than build, your car. It operates somehow; you’re not quite sure how, and if it breaks down, you take it to a garage.

Consider your education. Are you learning the skills that directly fulfill basic needs such as how to grow food or build a house? No, you are probably learning a set of skills that has little direct relevance to the production of most goods.

But you’ll most likely provide some good or service that will benefit the dairy farmer and auto mechanic and be able to do that at a lower opportunity cost than they could themselves. For most of the things you consume, you haven’t the faintest idea of who makes them or how they are made, nor do you need to know.