Specialisation & Division of Labour (AQA A Level Economics)

Specialisation & the Division of Labour

• Scotsman Adam Smith is often referred to as the 'father of economics.

• He published 'The Wealth of Nations' in March 1776 and explained many fundamental economic principles that we still use today

  • The premise of the book was to discuss how to increase productivity and wealth

• Based on observations made during a visit to a pin factory, he developed the ideas of specialisation and the division of labour

  • He noted that a single worker could not make more than 20 pins a day as it involved around 18 different processes, such as cutting the wire, sharpening the end, stamping the head, etc.

  • However, if the labour was divided up into different tasks and workers specialised in just that one task, Adam Smith estimated that just 10 workers could produce 48,000 pins per day

Diagram: Worker making steel pins

The division of labour takes one task and breaks it into multiple processes. A worker then specialises in each process and is more productive

• The division of labour is when a task is broken up into several component tasks

  • This allows workers to specialise by focusing on one (or a few) of the components that make up the production process and thereby gain significant skill in doing it

  • This results in higher output per worker and so increases productivity

• Specialisation occurs on several different levels

  • On an individual level

  • On a business level. For example, one firm may only specialise in manufacturing drill bits for concrete work

  • On a regional level. For example, Silicon Valley has specialised in the tech industry

  • On a global level as countries seek to trade. For example, Bangladesh specialises in textiles and exports them to the world

Benefits of Specialisation & Division of Labour for Consumers, Firms & Society

Facilitating the Exchange of Goods & Services

• Prior to the creation of money, individuals and firms had to accept other goods or services as payment, or be self-sufficient by producing everything required

• Often lacking self-sufficiency or driven by the desire for a wider range of goods/services, bartering became the norm but it too had problems

• As individuals and firms trade with each other in order to acquire goods or raw materials, they require a means of exchange that is acceptable and easy to use

• Modern currency fulfils this purpose, & money functions as a medium of exchange, a measure of value, a store of value, and a method of deferred payment

The Four Functions of Money