Division of Labour & Specialisation (Cambridge (CIE) O Level Economics)

Revision Note

Written by: Steve Vorster, Economics & Business Subject Lead

Reviewed by: Jenna Quinn, Head of New Subjects

An Introduction to The Division of Labour and Specialisation

Based on observations made during a visit to a pin factory, famous economist Adam Smith 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
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. E.g. Bangladesh specialises in textiles and exports them to the world

Advantages and Disadvantages for Workers, Firms and The Economy

Pros and Cons of the Division of Labour and Specialisation

Stakeholder	Pros	Cons
Worker	Workers can acquire the single skill required relatively quickly Workers gain recognition and status for performing their skill well	The work can be repetitive and boring There is limited opportunity to gain additional skills If the firm replaces labour with capital, the worker may find it difficult to find employment elsewhere due to their limited skill base
Firm	Time spent training new workers is relatively short Increased output allows firms to generate more sales and profit Higher labour productivity lowers cost/unit for firms, which makes their goods more competitive internationally (exports)	Worker productivity can fall due to the boredom/ decreased motivation experienced Staff turnover may be high as workers seek new, interesting opportunities elsewhere International trade is beneficial for the firms that can compete globally. However, some firms will be unable to compete and will go out of business Entire industries may close leading to structural unemployment
Economy	Increased exports can result in economic growth for the nation Economic growth usually leads to higher income and a better standard of living Income gained from exports can be used to purchase other goods from around the world (imports). This increases the variety of goods available in a country	Specialisation may create over-dependency on other countries' resources. This may cause problems if conflict arises (E.g. Europe's reliance on Russian natural gas during the Ukraine crisis) Specialisation using a country's own resources will lead to resource depletion. Specialisation increases the rate of resource depletion

Stakeholder

Pros

Cons

Worker

Workers can acquire the single skill required relatively quickly
Workers gain recognition and status for performing their skill well

The work can be repetitive and boring
There is limited opportunity to gain additional skills
If the firm replaces labour with capital, the worker may find it difficult to find employment elsewhere due to their limited skill base

Firm

Time spent training new workers is relatively short
Increased output allows firms to generate more sales and profit
Higher labour productivity lowers cost/unit for firms, which makes their goods more competitive internationally (exports)

Worker productivity can fall due to the boredom/ decreased motivation experienced
Staff turnover may be high as workers seek new, interesting opportunities elsewhere
International trade is beneficial for the firms that can compete globally. However, some firms will be unable to compete and will go out of business
Entire industries may close leading to structural unemployment

Economy

Increased exports can result in economic growth for the nation
Economic growth usually leads to higher income and a better standard of living
Income gained from exports can be used to purchase other goods from around the world (imports). This increases the variety of goods available in a country

Specialisation may create over-dependency on other countries' resources. This may cause problems if conflict arises (E.g. Europe's reliance on Russian natural gas during the Ukraine crisis)
Specialisation using a country's own resources will lead to resource depletion. Specialisation increases the rate of resource depletion

Last updated: 18 June 2024

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