Division of labour refers to the splitting of tasks or jobs among the individuals that constitute a firm, a household, or even an entire economy. The classic example of the division of labour is Adam Smith’s description of the pin factory, a very productive enterprise in which tasks were divided among workers.
Some workers only drew the wire, others only straightened, others cut it, others sharpened the tip, and still others put on the head. This division of labour resulted in much greater productivity than would be observed if every worker were charged with the manufacture of the entire pin.
Indeed, Smith emphasised that efficiency in production and the wealth of a society depended upon the combination of the division of labour and trade among individuals. An entertaining passage in The Wealth of Nations distinguishes between the wealth of human society and that of dogs as owing to the canines’ failure to break up tasks to the appropriate species and then engage in trade of these efficiently produced tasks.
Several reasons have been put forward to explain why the division of tasks among different people leads to increased efficiency. Concentration on a single activity may contribute to dexterity and the speed with which one can produce a unit.
Any costs involved in moving from one activity to another can be reduced by limiting the tasks of each individual. Innovation may occur more frequently when each person’s attention is focused on a particular operation.
Also, if a worker’s productivity increases with the amount of time the worker has spent on training for a particular task, then it follows that for a given length of training period, the productivity of workers will be greater the greater is the segregation of workers into the learning and performance of particular tasks. Beyond some point, further division of labour may impede productivity. Boredom may result from endless repetition.
The fact that larger-volume marker’s often exhibit a finer division of labour suggests that the potential gains from such division have not been exhausted. In comparison with rural areas, metropolitan areas have more physicians who concentrate on particular disease groups, more speciality retail stores, and more lawyers who concentrate on particular types of cases. Such examples also illustrate that sufficient demand for a final product (that is, a sufficient market size) is required to spawn a greater division of labour.
Transportation costs interact with the nature of a final product to determine the effective size of a market, the degree of the division of labour, productivity, and ultimately, the wealth of an economy. In service industries, geographic proximity often limits a market’s size. In goods industries, access to transportation networks and available transportation technology determine such limits.
Smith noted that a finer division of labour occurred along navigable waterways than at inland locations. Either neutral or politically imposed barriers to trade will limit the effective size of a market, the degree of division of labour, the productivity of labour, and the wealth achievable in such economies.
Other applications of these ideas include the division of labour in households — which has largely been sex-based, trade among countries in differentiated versions of similar products, and explanations of economic growth.
A consideration of ideas about the division of labour suggests that the relationship between population growth and economic well-being can actually run counter to the Malthusian view. Increases in population may allow increases in productivity due to an even greater division of labour and thus lead to greater per capita incomes.