Specialisation and Division of Labour

Imagine going to school and learning the same subject every single day. Would you get bored? Do you think you would become an expert on the subject? This article is all about specialisation and division of labour. These concepts are similar to doing a repetitive task in the work environment. Read on to learn about these concepts in more detail and why firms may opt for specialisation and the division of labour.

Meaning of specialisation and division of labour

Specialisation and division of labour have two different meanings. They are closely related but they are not interchangeable words. Let’s see their differences.

Advantages and disadvantages of specialisation and division of labour

Specialisation and division of labour play a really important role in the economy and their benefits represent also one of the most fundamental of all economic principles.

Advantages

Some advantages of specialisation and the division of labour are:

• Increased output. Workers who specialise in a field can be more efficient during the production process. Specialised workers can produce more output than other not specialised workers. That's because these workers have gained much more technical skills through experience and knowledge. For example, someone who studied computer science and has ten years of experience in the industry can create more and more sophisticated software than someone who recently graduated or someone who has no idea about computer programming.

• Less wastage. As workers become more specialised in performing a task during the production process, their errors are significantly reduced. This reduces the waste that occurs during production processes.

• Lower unit costs. Specialised workers can produce more output than other workers, and it takes them fewer hours. This contributes to bringing down the cost of input for the firms, as these specialised workers produce more in a shorter time.

Disadvantages

Some disadvantages of specialisation and the division of labour are:

• Over relying on other countries. When some countries have accumulated a significant number of workers pertaining to a particular skill such as artificial intelligence, it will make other countries more dependent on that country. This makes some countries over-reliant on other countries, and it could cause damages to balances of trade.

• Changes in fashion and tastes. Specialising in a certain industry is beneficial, but it doesn't mean that it can't go wrong. If a country’s workforce specialises in producing something that is in style now, it could end up in trouble if the tastes change. For example, right now it is very popular to eat quinoa and more and more countries are trying to produce it. However, what would happen in a few years if a country's economy relied too much on producing quinoa and it stopped being popular or considered a healthier alternative to rice? That is why countries should consider having the ability of specialised labour to adapt to new economic trends.

• Limited resources. Having too specialised labour in industries that require extensive use of limited resources might be a problem in the long term. The reason for that is that those limited resources will be consumed, and there will come the point when there's not more of them to be used in production.

The importance of trade and exchange when working on the specialisation and division of labour

For specialisation to be economically worthwhile for those taking part in the division of labour, a system of trade and exchange is necessary. This is because workers who completely specialise can’t enjoy a reasonable standard of living if forced to consume only what they produce.

The obvious solution is to produce more than what the worker actually needs, and then to trade the surplus.

Some reasons in favour of trade in terms of specialisation are:

• Greater variety. Having labour specialisation on certain goods or services from different countries provides greater variety consumers can choose from, making trade more efficient. A country may specialise in the production of hoovers. Although the main good is hoovers, there will be a range of different types of hoovers produced thus giving customers more choice.

• Economic growth. Having specialised labour not only makes a country’s production more efficient and able to produce more, but the quality of the product also increases, which makes the products more attractive. This provides a country with the ability to export more of its goods or services, which is one of the main sources of economic growth.

Medium of exchange

The trade and exchange of goods and services also highlight the importance of the use of money.

Money has four functions:

1. A medium of exchange.
2. A measure of value.
3. Storage of value.
4. A method of deferred payment.

These four functions are discussed in detail in the Money Market explanation. In this explanation, we will look at how money serves as a medium of exchange in relation to specialisation.

Buying items without money would be very difficult. That is why it provides a medium of exchange.

Without money, trading specialised goods and services would be very difficult. Consumers and producers wouldn't get what they really need or want, as goods and services wouldn’t be exchanged for the right value. However, money eliminates this problem completely.

Examples of specialisation and division of labour

Now that you understand what specialisation and the division of labour mean, let's take a look at a few real-life examples.

Adam Smith first popularized the concept of the division of labour in his famous example of the pin factory. He explained that the production of pins would become more efficient when workers were split up and had different roles in making a pin.

From his example, many others implemented the division of labour in their own companies.

1. Henry Ford in his Ford Motor factories.

   Henry Ford divided up his workers and had different roles in the production of motor cars in the 1920s. Many workers were able to concentrate and master small specific tasks, productivity increased, and this ultimately led to the increased production of motor cars.

2. Apple products.

   The process of producing Apple products is divided into smaller, different parts along the assembly and production lines. Workers are able to work more efficiently and this benefits Apple as they can make more products and benefit from the gains of economies of scale.