Specialisation and the Division of Labour

Candidates should understand the benefits of specialisation and why specialisation necessitates an efficient means of exchanging goods and services, such as the use of money as a medium of exchange.

Adam Smith is generally regarded as the father of economics. Smith was a moral philosopher and his first book ‘The Theory of Moral Sentiments’ was published when he was a professor at the University of Glasgow. After agreeing to take a wealthy young nobleman on a European tour, Smith used the experience to meet and discuss with the great thinkers of his age and to observe the continental economy.

‘An Inquiry into the Nature and Causes of the Wealth of Nations’ was published in 1776, the year of the declaration of American Independence, and on the cusp of the Industrial Revolution. The impact of his work was enormous and his tremendous influence on government policy endures to this day.

The opening chapter, in large part, answers the question - why are some nations wealthier than others? Smith identifies that a key factor is the principle of the division of labour. Little can be added here to Smith’s masterful account of the operation of a pin factory and I urge you to read the original.

In the video below, Milton Friedman who was a Nobel prize winning economist who believed in the importance of free markets, explains the power of the division of labour.
Division of labour by product
The pygmies of Zaire are a tribal people living the way their ancestors have done for millennia. The men use bows and arrows to hunt in the rainforest, the women look after children and cook. Clothes consist of little more than loincloths, if indeed they wear any. Shelter is made from tree branches and palm leaves gathered from nearby. There is a very limited amount of agriculture. Because there is so little production there is little surplus to trade with but occasionally small items are bartered, for example some coffee beans for a knife. The pygmies provide an example of a subsistence economy where there is almost no division of labour beyond men hunting and women carrying out domestic chores. By the standards of developed countries there is a very poor standard of living and life spans are much shorter than ours. On the plus side the pygmies do little harm to nature and they are not riven by class differences, but by many other standards it is a poor life.

More advanced economies do better at producing food, clothing and shelter. Economies where there is a degree of specialisation can produce more than just these basic necessities. The first level of specialisation is when people take on different production roles. The skills needed to fish are very different from the skills of the farmer, the tailor or the blacksmith. And because specialisation leads to more and better quality goods being produced, each person then produces more than they need. Through trading, this surplus production can be used to purchase the products of other artisans. Society as a whole benefits from the gains from exchange discussed later in this chapter.

Division of labour by process
Adam Smith used the example of a pin factory to explain the division of labour by process. This involves producing a product by splitting up the stages of manufacture and different workers performing only a few of the functions. The principles explained by Smith in 1776, can be seen in the example of Henry Ford’s automobile factories in the early 20th century.

Ford was an engineer with the Edison Illuminating Company and tinkered with internal combustion engines in his spare time. In 1899 he left Edison and started his own company producing cars.

Previous to 1913, work in engineering factories work involved division of labour by process to some extent, but individual specialists did a range of highly skilled jobs using general purpose machine tools such as lathes. These specialists were highly trained, having spent many years learning their trade. Ford increased this division of labour so that each step of a process became narrower and narrower. Instead of a wheelwright constructing a whole wheel, an operative would produce merely the spokes of the wheel. Because of the repetitiveness and dullness of the job, Ford offered higher wages than anyone else, partly to reduce the turnover of labour but also because the increase in productiveness enabled him to do so. So despite having a reduced skill level, Ford’s workers were better remunerated than skilled workers elsewhere.

This division of labour was possible because Ford was building such a large number of cars and the factory could afford to employ a large number of workers. The productivity of each worker was raised because the revenue from selling large volumes meant that it was it was now affordable to use single purpose machine tools. These were machines designed to do one job and one job alone. Expensive as dedicated machine tools are, they make financial sense if they are being used all the time. Again the large-scale production made these tools a worthwhile investment.

Ford’s final leap forward came with the introduction of the moving assembly line in 1913. Previously, men worked at their own pace, now Ford could make workers operate at the speed of the conveyor belts.

Thus it was that the division of labour by process coupled with the use of dedicated machinery led to an enormous increase in productivity. In 1909 Ford sold his cars for $850 but such were the gains in efficiency from the assembly line that by the 1920s Ford was selling the same Model-T at $290, yet still making a profit.

The reasons why the division of labour leads to extraordinary increases in productivity are:

1. Increased levels of skill
Repetition of the same task leads to the job being done better and more quickly. In the case of division of labour by product, the carpenter or tailor learns over a period of many years the intricacies of their craft. In the case of division of labour by process constant repetition increases the speed at which a task may be completed although the skill may be limited to a very narrow range of tasks or even just one task.

2. Less downtime
When workers are performing a multitude of tasks, switching between them involves a lot of time moving about or picking up and putting down tools. Staying at one place on the production line means the time lost between tasks and moving about is avoided.

3. Increased use and efficiency of capital equipment
A trained blacksmith uses a large variety of tools whilst performing his job. For the most part these tools are idle and lying around waiting to be used. In a factory like Ford’s, single purpose machine tools are used constantly. This means the seemingly costly capital equipment is actually not because they are in constant use producing very high volumes of work. The use of robots in manufacturing is now commonplace and extended this principle further still.

4. Skill matching
Specialisation throughout a country, and now globally, has meant that people with expert skills end up doing tasks which they are best suited too in the places they are most desired. Free markets tend to reward people more for doing the things they are best at, so if the market is functioning well, people with specialist skills or ability are directed into those tasks.


1. The alienation of labour
Karl Marx thought that the capitalist system of production, distanced workers from the product they were making as a series of dull repetitive tasks offering no intrinsic reward. Production lines removed the worker from any control over the processes of production reducing their efforts into an illusory commodity recompensed merely with wages. The total wages the workers receive are then less than the value of the product they collectively produce, the difference being appropriated by capitalists. Men cease to be what makes them human and they become subject to the control of others.

Whilst you may or may not agree with Marx, on the whole people do not relish a lifetime on a production line.

2. Boredom
Boredom leads to error and the extra cost of rectifying mistakes. Quality may suffer, as it did in the UK car industry In the 1960s and 1970’s when production was bedevilled by strikes, and quality suffered as workers even sabotaged their own product. To what extent this was due to the boredom of the jobs and what extent it was political trouble making or poor management is hotly debated, but the mind numbing repetitiveness of the work certainly had a part to play.

3. Interdependence
When production becomes a series of interrelated small steps the whole of the factory becomes dependent on each part. If one process stops – the whole factory stops and production is lost. The same is true of a country, when London Underground workers go on strike, much of our capital city grinds to a halt. Increasingly this problem is a global one; when the countries that make up the Organisation of Petroleum Exporting Countries (OPEC) imposed and embargo on oil sales to the west in the 1970s, Europe and America almost shut down. In the UK the government operated a three day week with powers stations shutting off the electricity.

4. Indivisibilities
Indivisibilities are limitations on the production process due to the size of the market. In the Ford example we saw how a very high degree of specialisation was possible because the market for cars was enormous. However some products have little demand. For example, the market for leather-bound books is a small one, therefore the production quantities are low and so the workforce is small. In this environment the full benefits of the division of labour are unobtainable because each worker must take on a number of tasks.

5. Redundancy and regional unemployment
Becoming overspecialised places individuals and areas at some risk. When a new technology comes along, the product of a factory may become instantly outdated and the workforce redundant. Workers who are skilled or semi-skilled may find their talent has no demand and production-line workers may be too poor, or have family roots so deep in an area, that they cannot move to where jobs are. When industries are localised, for example coal mining or shipbuilding in South Wales and the North East, whole communities suffer when the pattern of demand changes. This is equally true when another country can suddenly undercut another’s costs. For example, there were many redundancies in the UK when call-centre operations were outsourced to India.
The division of labour is one of the most powerful ideas in the story of human development. The change in organisation of society from traditional economies to ones where there is a division of labour means there is a surplus of production above that which is needed merely for survival. This surplus can be traded and the gains that can then be made from this process of exchange, and the way in which the invention of money helps trade to happen, is discussed on the next page.