Select personalised ads. Apply market research to generate audience insights. Measure content performance. Develop and improve products. List of Partners vendors. Adam Smith is considered to be the father of modern economics. He laid out many economic theories that are studied and used to this day.
One of his theories was that the division of labor through specialization will lead to growth. He described this idea as far back as , in his book, An Inquiry into the Nature and Causes of the Wealth of Nations. Smith's belief was, that as a company grows, it is able to hire more workers, and hiring more workers allows a company to divide the workers into certain roles, meaning they will have fewer responsibilities and are able to improve and specialize in one core skill.
Once a worker becomes more efficient at their task, this will result in increased production levels, utilizing less time and less cost. Let's take a look at the terminology behind Smith's theory. Economies of scale describes a cost advantage achieved by a company when production becomes efficient. Increasing production and lowering costs results in economies of scale because the costs are spread out over a larger number of goods.
Or to look at it another way, producing additional goods does not require a significant increase in costs. Reducing the cost of units per production is the main benefit of economies of scale.
Larger companies are more likely to achieve economies of scale than smaller companies because they are able to produce more goods and therefore can spread out costs over a larger number of goods. Specialization , in economic terms, means focusing on one task rather than multiple tasks, which allows workers to perfect that one task.
This is a basic concept of learning. Division of labor and specialization in corporations: Corporations , from the Concise Encyclopedia of Economics. Corporate officers operate businesses whose capital requirements far exceed their personal saving or the amounts they would be willing or able to borrow…. Specialization and Wealth , by Dwight Lee. At CommonSenseEconomics. A remarkable degree of social cooperation emerges through market communication.
At a general level these advantages are obvious. It simply makes sense that we can produce more if our actions are in harmony than if we are working at cross-purposes. But to really understand economics, we must consider the link between cooperation and productivity in detail. Wealth seldom comes as manna from heaven.
It has to be produced by applying human effort, intelligence, and patience to natural endowments that yield their bounty reluctantly. This should be obvious. Although the advantages are still overwhelming, it is still important to identify the disadvantages and how to mitigate them.
Specialising on a specific task can increase productivity, but it can introduce a level of monotony and boredom. Doing the same thing repeatedly without any challenge is not conductive to the human condition. We naturally crave advancement and meaning. Certain jobs are more monotonous than others. Think of standing in the middle of a factory, repetitively putting goods in a box.
Some may enjoy such tasks, whilst others become disengaged. However, on the whole, productivity may decline and turnover rates increase. Yet compared to the pre-division of labor, the productivity rates are still at advanced levels. One of the ways by which employers counter-act boredom is either through performance based bonuses, higher pay, or performance checks. The success of which depends on how and where they are implemented. For instance, the creation of a simple pencil is split down into several parts.
Someone must mine the granite, another to cut the wood, another to produce the rubber, and another to put it all together. Nobody in the process truly understands how the pencil is made, but all are involved in its creation.
At the same time, the final production is reliant on the timely delivery of materials. Should one part of the process be delayed, either by a strike or natural disaster, the whole chain can fall apart. When each person is only a small part of a bigger chain, it can become difficult to assign responsibility. If a task fails, it can be time-consuming to find out where things went wrong.
At the same time, it also becomes easier for certain individuals to slack. When one person produces X output, it is easily measurable. However, when they are part of a bigger process, it is difficult to measure the final output. As a result, some employees may not take so much responsibility for the failure of tasks.
Perhaps one of the most famous examples of the division of labor was the creation fo the assembly line by Henry Ford in The Ford Model T was previously manufactured with parts over the floor with an employee putting it together. Like building a flatpack from Ikea! What Ford did was divide the process up into 84 distinct steps , training an employee in one specific task.
So one employee would put the bolts on the wheel, another the steering wheel, another the gear stick, so on and so forth. As a result, the product time of a Ford Model T decreased from 12 hours to just 90 minutes.
Ford Model T decreased from 12 hours to just 90 minutes. However, if a factory produces fifty thousand cars each year, then it can set up an assembly line with huge machines and workers performing specialized tasks, and the average cost of production per car will drop.
Economies of scale implies that production is becoming more efficient as the scale of production rises. The ultimate result of workers who can focus on their preferences and talents, learn to do their specialized jobs better, and work in larger organizations is that society as a whole can produce and consume far more than if each person tried to produce all of their own goods and services.
The division and specialization of labor has been a force against the problem of scarcity. Specialization only makes sense, though, if workers and other economic agents such as businesses and nations can use their income to purchase the other goods and services they need. In short, specialization requires trade. You do not have to know anything about electronics or sound systems to play music—you just need a device e.
Instead of trying to acquire all the knowledge and skills involved in producing all of the goods and services that you wish to consume, the market allows you to learn a specialized set of skills and then use the pay you receive to buy the goods and services you need or want. This is how our modern society has evolved into a strong economy. Improve this page Learn More. Skip to main content.
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