When we divide and subdivide the tasks involved in the production of a good or service, workers and companies can produce a greater amount of output.
In his observations of pin factories, Smith noticed that a single worker could make 20 pins in a day, but that a small business of 10 workers (some of whom would need to complete two or three of the 18 tasks involved in pin-making), could make 48,000 pins in one day.
How can a group of workers, each specialized in certain tasks, produce so much more than the same number of workers trying to produce all the good or service by themselves? Smith offered three reasons.
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First, specialization in a particular small job allows workers to focus on those parts of the production process where they have an advantage.
People have different skills, talents, and interests, so they will be better at some jobs than others.
Particular advantages can be based on educational choices, which are in turn shaped by interests and talents. Only medical graduates are qualified to become doctors, for example. For some goods, geography affects specialization.
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For example, it is easier to be a wheat farmer in North Dakota than in Florida, but easier to run a tourist hotel in Florida than in North Dakota. If you live in or near a big city, it’s easier to attract enough customers to run a successful dry cleaning business or movie theater than if you live in a sparsely populated rural area.
Whatever the reason, if people specialize in producing what they do best, they will be more efficient than if they produce a combination of things, some of which they are good at and others why they are not.
Second, workers who specialize in certain tasks often learn to produce faster and with better quality.
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This pattern holds true for many workers, including assembly line workers who build cars, stylists who cut hair, and doctors who perform heart surgery. In fact, skilled workers often know their jobs well enough to suggest innovative ways to do their jobs faster and better.
A similar pattern often operates within companies. In many cases, a company that focuses on one or a few products (sometimes called its “core competency”) is more successful than companies that try to manufacture a wide range of products.
Third, specialization allows firms to take advantage of economies of scale, which means that for many goods, as the level of production increases, the average cost of producing each individual unit decreases. For example, if a factory only produces 100 cars per year, each car will be quite expensive to manufacture on average.
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However, if a factory produces 50,000 cars every year, it can set up an assembly line with huge machines and workers performing specialized tasks, and the average production cost per car will be lower.
The ultimate result of workers who can focus on their preferences and talents, learn to do their specialized work better, and work in larger organizations is that society as a whole can produce and consume far more than if everyone tried to produce everything. what he had. goods and services.
The division and specialization of labor have been a force against the problem of scarcity.
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