In this research paper, concept of Division of labor by Adam Smith is critically evaluated. The concept itself is briefed clearly and precisely. Complex dimensions of Division of labor are seen in detail with including the drawbacks. Real implications in the today’s world are also seen with having examples of institutes and countries where the concept of specialization is applied. There are several benefits related to division of labor or specializations are included in this paper along with the proposed benefits from the author of concept Adam Smith himself. At the end, evaluation of two countries, Germany and Brazil is done on the basis of specialization implemented for having a clear view of the impacts specialization brings in the economic performance of the country. Comparison of per capita GDP is taken as the standard of evaluation as it represents average income per person in the country. On the other hand, the factors that stop the economy from having specialized industry are discussed.
Concept of division of labor by Adam Smith
Adam Smith presented one of the great concepts of economics in his book Wealth of Nations. Adam Smith named that concept as a division of labor. Smith described the concept of division of labor by relating it to tasks. Divisions of labor are basically dividing tasks of production into different separate parts and then assign each labor a different task (Foley, 4)
The main task, Adam Smith seeks to accomplish through this division of labor, is to increase the productivity of labor. Labor productivity is measured by the ratio of output produced by some particular product like such pins, wheat, houses, cars with having a base of labor hours required to produce that output. Same goes for measurement of the higher levels as well such as country’s productivity (Foley, 4).
Specialization and division of labor are two words that are used interchangeably. Adam Smith defines that productivity is dependent on the element of specialization or division of labor. The speed of the person who is doing the task again and again increases and this is defined as the greatest part of the specialization. This increased speed and mastery in operations results in greater productivity and quality for the company (Hunt and Lautzenheiser, 58)
Two critical factors are highlighted which are needed to be present for extensive specialization to take place. First well developed market; and a second size of the market. If production is too high, but there is no such demand from the market then specialization in operations is not useful because increased production cannot be used or exchanged (Hunt and Lautzenheiser, 58)
Labor productivity differs in different sectors of production so by taking an average of total output produced by the country with respect to the market prices of the output and then by dividing index of prices with some standard set as base year prices, real GDP growth is calculated. Once real GDP is calculated, labor productivity can be estimated by dividing real GDP by total labor input in hours or days (Foley, 5).
Advantages of division of labor
Smith proposed three ways by which division of labor can increase labor productivity.
Specialization or expertise of the labor increases because of doing the same task again and again.
Time is saved because labor does not have to shift from one task to another.
The invention of machines that are specialized in doing some certain specific tasks.
There are several other advantages of Division of labor. The first advantage is that the creation of specialized labor does not require much training because everyone has the different part of the whole job, so only that specific part is needed to be learned by the worker. It reduces costs for training personnel. Reduced wastage is also one of the benefits acquired through the division of labor because specialization increases mastery of the personnel in performing specific tasks which automatically reduces the amount of wastage in operations.
Drawbacks of division of labor by Adam Smith
There are drawbacks of the division of labor which are highlighted by Adam Smith and other studies as discussed below.
Adam Smith argued that division of labor can result in boredom for employees because if one person keeps doing the same thing daily it creates fatigue and alienation from the task that reduces worker’s output (Foley, 5)
The other drawback of the division of labor is that it increases unemployment among the people because increased labor productivity reduces the number of labors required. In response to this argument, Adam Smith said that the people who lose their jobs would get employment somewhere else, but the cost reductions would help products to be available in cheaper prices to end consumers (Foley, 11)
The mobility of labor reduces as a result of doing monotonous tasks again and again. Labor finds it difficult to get a job in some other company because of the limited skill. It makes workers highly dependent on the capitalists or owners of the company.
Demerits of the division of labor are also many for example responsibility is lost as many people make one thing in a collaborate effort. So if the production is not good or adequate nobody can be held responsible for delaying the production (Shah).
Cost reduction is considered as one of the biggest advantages derived from the division of labor. Division of labor no doubt reduces costs for the company but it also results in increased size of the company thus making it difficult to monitor. Monitoring costs are increased because to look after the huge facility is not easy, and it needs more resources as well (Borland, and Yang, 386-91).
Other examples of division of labor
There are several examples of divisions of labor given in different contexts, but the theme of this concept remains the same. Tasks are divided into different parts for getting benefits of specialization.
In another book, an example of agriculture and commercialization is given by Haunt and Lautzenheiser (58). It can be seen that agriculture is done in rural areas, and commercialization or industries are implemented in urban areas in order to get benefits from division of labor region-wise (Hunt and Lautzenheiser, 58)
Benefit of division of labor has been linked with economic growth of the country because division of labor results in greater output and greater outputs can only be bought by the population once it has greater disposable incomes. For example, Ford’s assembly-line methods of production allowed it to produce cars at the fraction of costs of individually hand-made automobiles produced by its competitors. However, the recovery of factory costs could only be obtained by selling a greater number of units (Foley, 11).
Division of labor practices in the today’s world
Division of labor is practiced in many departments and institutions of the world here are some examples of using the concept of division of labor in order to achieve greater efficiencies in operations.
UNAIDS have implemented division of labor in order to reduce cost of its operations as well as for increasing efficiency of their operations by defining goals and objectives of some particulars parts clearly and precisely with having clear role descriptions (UNAIDS, 1)
The other reason for this division of labor is that it provides United Nations programs with greater flexibility and adaptability of operations as per requirements of different countries circumstances (UNAIDS, 1)
Division of labor is changing rapidly on a global basis, as the whole scenario is changed. At first low skilled jobs were getting done in developing countries and high skilled jobs in the developed countries. Recent technological developments such as the internet have made it possible to relocate more and more jobs abroad including high skilled jobs. The changing nature of the global division of labor has altered the description of many jobs completely, and people are likely to work in more than one occupation during their lives.
One of the greatest advantages of specialization is that it helps in promoting trade among countries. For example, one country has specialization in producing machines, and other is having specialization in producing wheat so both can increase their production in the relative specialized field of them and then afterward can make the exchange of goods produced.
Importance of division of labor by different studies
Many studies have put emphasis on the importance of the division of labor by relating different significance to this concept. In the modern world, people who mostly think about the division of labor are in the fields of management. In the new era, where labor is getting specialized, not locally but globally, many people are confused about the best specialization of labor that generates fair, ideal and efficient results. Applicability of the concept of division of labor is certain because with the expansion of many fields it is getting important to divide labor by tasks as nobody can perform all tasks simultaneously.
Importance of division of labor in running the economic system efficiently is immense. Efficiency and reduction in time of processes are some of the great advantages of the division of labor. When tasks are divided into several specialized tasks, then these tasks will take less time and cost. For example, one person is making the whole shoe would take more time than several people are making shoes, and the tasks are divided by their specialization in some specific part of the creation process.
Warf (73) highlighted the benefit of better quality with combining the element of the right person for the right job. It is explored that if one person is doing the same job again and again it would not only increase his speed at work but would also boost quality of the product made by the labor. Quality is then linked with the generation of goodwill and profits for the company.
The significance of the concept division of labor can be identified in the modern practices as the same thing is named differently in the modern world as economies of scale. After analyzing the economies to scale critically, it can be said that these economies are derived from Adam Smith’s described advantages of increased efficiency and time saving through none shifting of tasks (Warf, 73).
Importance of division of labor increases because of its provided benefits in the field of cost reductions. The efficiency of operations is not the only element contributes to reducing costs for the business but the simplicity division of labor brings to the operations further helps organizations in replacing craftsmen with lower-paid unskilled labor.
Economy wise analysis
Here in this portion of the paper comparison of the highly specialized economy with the less specialized economy is done. In the highly specialized economy, an example of Germany is taken into account. Brazil is taken as an example of a less industrially developed country. Economies of these two countries are evaluated critically with respect to the GDP contribution of average labor in both the countries. Total real GDP growth ratio with having the base of a total number of people in the workforce is evaluated then average of both countries is compared.
Brazil is the country located in the region of South America. Most of the countries in this region are not highly specialized. In this document, comparison of Brazil is done with respect to the highly specialized economy of Germany. Here are some demographics of Brazil population.
The real GDP of Brazil in 2013 is reported by World Bank as $2.2457 trillion US Dollars (Google). GDP per capita income of Brazil is reported to be $5823 in 2014 by World Bank. The graph below shows a trend of the GDP per capita of Brazil (Trading Economics a):
(Trading Economics a)
Germany is one of the world’s highly specialized economies. It is reported by Time magazine, that German companies are highly specialized in making machinery and other heavy equipment. The main growth of German economy comes from its highly specialized industries that are producing highly quality oriented specialized goods (Make it in Germany).
Germany’s 90% of exports are visible industrial goods. German company’s specialization in producing goods can be estimated through the ratio of Germany exports. As it exports 41.5 percent of its total production that is ahead of many big countries such as France, Japan, The UK and the USA. This ratio of production in exports shows clearly that Germany is even more specialized than countries like France and USA (Make it in Germany). Per capita GDP of Germany is given in the graph below:
(Trading Economics b)
It can be clearly seen that per capita GDP of both countries differ significantly. Per capita GDP is the best source for measuring the output of an average person in the economy.
Comparison of both countries
Comparison of both countries is done by keeping both the countries altogether and then measuring their performance. This measurement is illustrated with the Graph.
Here is the table of GDP per capita for both of the countries. Figures from 2010 to 2014 are included for the comparison.
The graph is given to illustrate the scenario in a more defined manner.
It can easily be seen in the graphical representation of the GDP’s Per Capita for both the nations that specialized economies GDP differs significantly. GDP Per Capita of Germany is almost six times greater in comparison with the Brazil, which is not so specialized economy.
Although, Brazil is doing efforts in order to become one specialized country but the difficulty Brazil is facing is a lack of specialized labor availability. It is highlighted by many companies as well as economists that growth goals of Brazil will jeopardize because of non-availability of specialized labor, particularly in the fields of engineers and tradesmen (Downie).
At the concluding point of this paper, it can be stated that specialized economies tend to perform better than the economies having less specialization. Factors like greater productivity in reduced time are identified as core benefits of the concept division of labor. On the other hand, increased quality of products with having reduced wastage in order to decrease costs is highlighted. Lack of highly specialized labor is the core factor that stops economies from growing tremendously by implementing concepts of specialization. Proper education system continuance is needed in order to ensure the supply of best skilled labor to the market. Economies are needed to develop better infrastructure in order to build the better specialized economy.
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