specialisation-and-the-division-of-labour

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Specialisation and the Division of Labour

Scottish economist 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
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 over a measured time period 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

Advantages and Disadvantages of the Division of Labour and Specialisation

Evaluating Division of Labour and Specialisation in Production

Pros	Cons
Higher labour productivity lowers cost/unit for firms	Task repetition often leads to boredom and a decrease in worker motivation
Lower cost/unit can be passed on to consumers in the form of lower prices	A decrease in motivation may lead to less productivity and/or poorer manufacturing quality
Lower cost/unit can mean higher profits for the firms. This may lead to higher wages for workers	It may increase worker turnover rates as workers look to move on to a role that is more stimulating
Increased productivity allows some firms to sell beyond their local market into international markets	Mass produced products often lack variety and do not take different consumer preferences into account
It creates many low skilled jobs	If workers lose their jobs, then it may be hard for them to find work as they are only trained in one skill

Pros and Cons of the Division of Labour and Specialisation in Trade

Evaluating the Division of Labour and Specialisation in Trade

Pros	Cons
Higher labour productivity lowers cost/unit for firms, which makes their goods more competitive internationally (exports)	International trade is beneficial for the firms that can compete globally. However, some industries will be unable to compete and will go out of business
Increased exports can result in economic growth for the nation	Many firms in an entire industry may close, leading to structural unemployment
Economic growth usually leads to higher income and a better standard of living	Specialisation may create over-dependency on other countries’ resources. This may cause problems if conflict arises (For example, Europe’s reliance on Russian natural gas during the Ukraine crisis)
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 using a country’s own resources will lead to resource depletion over time. Specialisation will increase the rate of resource depletion

The Functions of Money

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 and money functions as a medium of exchange, a measure of value, a store of value, and a method of deferred payment

Money is a medium of exchange

Without money, it becomes necessary for buyers and sellers to barter (exchange goods)
Bartering is problematic as it requires two people to want each other’s good (double co-incidence of wants)
Money easily facilitates the exchange of goods, as no double co-incidence of wants is necessary

Money is a measure of value

Money provides a means of ascribing value to different goods and services
Knowing the price of a good in terms of money allows both consumers and producers to make decisions in their best interests
Without this measure, it is difficult for buyers and sellers to arrange an agreeable exchange

Money as a store of value

Money holds its value over time (of course inflation means this is not always true!)
This means that money can be saved
It remains valuable in exchange over long periods of time

Money as a method of deferred payment

Money is an acceptable way to arrange terms of credit (loans) and to settle any future debts
This allows producers and consumers to acquire goods now and pay for them in the future

Economics_A-level_Edexcel

specialisation-and-the-division-of-labour

Specialisation and the Division of Labour

Advantages and Disadvantages of the Division of Labour and Specialisation

Pros and Cons of the Division of Labour and Specialisation in Trade

The Functions of Money

Money is a medium of exchange

Money is a measure of value

Money as a store of value

Money as a method of deferred payment

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