Divisionof labor involves breaking down complex processes of production intoseveral simpler tasks, which each task being carried out by a personwho specializes in the said task. According to Mittleman (2014),division of labor are the different forms of specialization thatseparate the production processes into different sections, with eachsection performing different tasks at varying rates of profits.Division of labor is not a modern concept, and its origin can betraced back to ancient civilization. However, societies started to beaware of the concept starting from the 18thcentury. Several classical economists, such as Adam Smith and DavidRicardo perceived the importance of division of labor and publishedseveral works to emphasize the importance of the concept in thesociety (O`Brien, 2004). Adam Smith was the first scholar to attemptto explain the theory of division of labor and is even credited forcoming up with the term. On the other hand, David Ricardo drew uponthe work of Adam Smith and came up with the theory of comparativeadvantage (Negishi, 2000). This paper seeks to discuss and comparethe concept of division of labor as proposed by two classicaleconomists, Adam Smith and David Ricardo. Both economists focused onthe role of specialization. However, Adam Smith argued that anexpanding market forms the basis of division of labor while Ricardowas of the view that the differences that facilitate trade are theroot cause of specialization (O`Brien, 2004).
Divisionof labor has emerged as one of the important concepts in moderneconomics. The trends in the modern industries have seen manypeople’s attention being drawn to the division of labor and how itaffects productivity and profitability. The modern productionprocesses involve mechanisms that are increasingly becoming powerfulas well as large-scale groupings of capital and power. This in turnhas resulted in the extreme division of labor. Both Adam Smith andDavid Ricardo see the division of labor as an important feature of adeveloped economy characterized by a large increase in the varietyand volume of production. A developed economy is quite complex,meaning that one person or family cannot successfully produce all ormost of the goods and services it consumes. Instead, each person orfamily specializes in the production of certain goods and services,acquiring other services and goods from others who have specializedin producing them. David Ricardo’s theory of comparative advantageproposes that the size of the market plays an important role increating incentives for specialization and creation of wealth throughtrade. Ricardo’s main argument is that a higher number of people wetrade with create a bigger opportunity for innovation andspecialization. On the other hand, Adam Smith’s main argument isthat society can only prosper if it increases the division of labor(Wadeson, 2013).
AdamSmith and division of labor
AdamSmith highlights the importance of the division of labor in TheWealth of Nations. His argument on the division of labor as presented in his work hassince then became the basis of modern theories on the division oflabor. Smith’s analysis of the concept of division of labor emergedas the first major attempt to examine the possibility of a morecomplex division of labor emerging (Smith, 1961). This complexdivision of labor went on to develop on the European continent,starting from the industrial revolution (Negishi, 2000). According toBuchnan and Yoon (2006) division of labor from Smith’s point ofview means that each task in the production process is divided insuch a way that different people are doing different tasks. Toemphasize how important division of labor is important, Smith givesan example of a pin factory. In this factory, producing a single pinrequires twenty-two different operations. Each of the twenty-twooperations is performed by different workers. According to Smith, ifeach of the specialized tasks was assigned to certain numbers, then ahigher number of pins could be produced. However, the absence ofspecialization would mean that it would be difficult to produce evena single pin per day. Smith points out that division of labor wouldresult in increased productivity due to three main factors. Thesefactors are “increase in dexterity in every particular worker, thesaving of time that is commonly lost when passing from one species ofwork to another and the invention of a great number of machines,which facilitate and abridge labor, and enable one man to do the workof many (Smith, 1961).”
Smithpresents three reasons why the division of labor leads to higherlevels of productivity. The first reason Smith provides is related tothe effect of practice. He argues that repeating a given tasks overan extended period eventually leads to improved performance. On theother hand, doing many tasks means that each of the tasks is beingrepeated less often. Therefore, less is gained in terms of practiceif a person has to do many tasks (O`Brien, 2004). Apart from theeffect of practice, Smith points out that switching from one task toanother comes at a cost in terms of time. According to Smith,adjusting from one task to other different tasks is time-consuming asone might need to lay down a certain set of tools and pick adifferent set of tools. Switching between tasks also involves apsychological investment in attention (Buchanan and Yoon, 2006).According to Smith, shifting attention from one task to another alsoinvolves spending time. Focus on a single task means that there is asignificant reduction in the time expenditure required to concentrateon different tasks. In modern economics, the process of reducingthese costs associated with switching from one task to another isreferred to as minimization of set-up costs. Each worker undertakinga single task saves time and yields more output compared to when aworker is doing two or more tasks and has to switch back and forth(Durkheim, 2014).
Thethird reason for specialization and division of labor as given bySmith is that when a single worker has a limited set of tasks tofocus on, then they can come up come with machines or otherinnovative of handling the said tasks more effectively. Smith gavethis reason during a period where less common compared to today(Samuels et al., 2003). However, this reason is not applicable inthe modern environment due to the widespread availability ofmachines. In the modern economies, workers largely depend oninnovators for new machines. Smith goes ahead to argue that bydividing labor, the growth of an economy can be sustained. What Smithmeans is that people who specialize in the production of differentgoods or services are able to trade with each other or sell theirservices to a common employer. As a result, the two are able toperform the tasks they have specialized in for each other. Smith’sview of the importance of the division of labor sees the market asthe as the main means through which different abilities andperformance of different tasks are made to complement each other issuch a way that more activity can be produced. According to Smith,the extent of the market limits the division of labor.
Smithopines that there are three main sources of the division of labor.These sources are habit, custom and education, self-love as well asthe natural propensity of people to truck, barter and trade (Smith,1961). Self-love relates to how people are keen on improving theirpositions. According to Smith, self-love drives people to trade andengage in the division of labor. With regard to the tendency ofpeople to truck, batter and exchange, Smith means that people naturaldesire those commodities that they cannot make by themselves. Habit,custom and education refer to the varying levels skills and educationpeople have. According to Smith, some people are more skilled incertain tasks while others have a better education.
Smithargues that the higher the rate at which goods and services are beingsold in the market, the greater the division of labor in the saidmarket. Additionally, as the market extend, so does the division oflabor in the said market becomes finer. As a result of the increaseddifferentiation, profitability of trade can be attained. Smith alsomaintained the view that an increase in the division of labor willalso result in higher standards of living. According to Smith, theefficiency in productivity due to increased specialization would leadto increased availability of goods and services at prices that aremore affordable (Smith, 1961). Individuals and families will then beable to access a variety of goods and service more easily, which inturn would lead to improved living standards. However, Smith did nottake into consideration the disruptive and deleterious effects ofrepetition and overspecialization (O`Brienand Williams, 2004)
Basingon his earlier argument that the extent of the market limits divisionof labor, Smith goes ahead to argue that free trade would also playan important role in the wealth of both individuals and nations. Greater wealth would be achieved by an increase in the division oflabor, which would come about as a result of extending the marketbeyond the national border. According to Smith, there is a closeconnection between free trade and specialization (Samuels et al.,2003). Smith develops the concept of absolute advantage in which heargues that adhering to mercantilist prescriptions would not make itpossible for all nations to increase their wealth and become rich atthe same time. This is because nations do not produce the same typeof goods and services and what one nation export is what anothernation imports (Wadeson, 2013). Smith points out that nations canonly gain simultaneously through specialization and free trade.According to Smith, different countries have varying levels of laborproductivity. As a result, different countries specialize in theproduction of certain goods and services as facilitated by theirlevel of labor productivity. As a result, unrestricted trade isnecessary if different nations wish to gain. Smith’s absoluteadvantage theory posits that international trade allows countries toproduce higher quantities of goods and services in which they have anabsolute advantage. Higher productivity is attained due to the savedlabor time.
DavidRicardo’s argument about the division of labor is based on theprinciple of comparative advantage, which heavily borrows fromSmith’s productivity theory. According to Ricardo, goods andservices are valued according to the quantity of labor required toproduce them. Ricardo argues that the value of the goods and servicescan be enhanced through foreign trade since the relative value ofgoods is different across different nations (Ricardo, 2001).According to Mittleman (2014) the rules that govern the relativevalue of goods in one country does not regulate the relative value ofcommodities exchanges among countries. Ricardo is of the view thatnature has bestowed each country with peculiar powers in such a waythat labor is distributed effectively and more economically (Wood,1991). The differences that exist between countries force them toform a trading partnership. These differences make it possible forspecialization and subsequent trade activities to emerge. Accordingto Ricardo, different nations will continue trading with each if thedifferences in specialization persist, but once the differencedisappears over time, so will the trading partnership cease to exist(Negishi, 2000).
Labor,according to Ricardo, produces all the other factors of productionincluding capital. As such, labor is the only source of value. Itthen follows that a product would be cheaper in a country, which hasa comparative advantage in producing a certain good and services andthat this in turn forms the basis of trade between the country andanother country with low or without any comparative advantage inproducing the said good or service (Samuels et al., 2003). The mainargument as presented in Ricardo’s concept of comparative advantageis that labor productivity plays a very important role in the finalpricing of a commodity. According to the theory of comparativeadvantage, lower levels of labor productivity do not necessarilyexclude a country from the international trading system. The modelassumes that trade is always a win-win situation since those workingin different countries which are in a trading partnership are able toutilize more of all the commodities (Sandmo, 2011). However, themodel makes an assumption that full employment is a guarantee andthat labor productivity is fixed across all countries. The onlydifferences that the model acknowledges exists between countries aretechnology differences. It fails to take into consideration the factthat the many countries in the real world utilize many factors ofproduction to produce goods and services and that each market is notperfectly competitive (Wood, 1991).
Ricardo’scomparative advantage theory suggests those countries that are lessefficient in producing every other commodity can be part of theinternational trading system by trading in commodities in which theabsolute disadvantage is lowest. Ricardo goes ahead to demonstratethe benefits of specialization by giving an example of the tradingpartnership between England and Portugal. The example points outthat England is better at producing linen while Portugal is good atproducing wine. As a result of this difference, both countries canenter into a trading relationship in which both will gain by havingeach country specialize in a task that it can perform best (Ricardo,2001). Comparative labor costs play an important role in theestablishment of any trading relationship between two or morecountries. A country is only able to export commodities whoserelative labor costs are lower and import those commodities whoserelative labor costs are high (Sandmo, 2011).
Inhis analysis of the impact of trade between two countries, Ricardomakes an assumption that it is the products that can freely moveacross countries as opposed to labor and capital goods. According toRicardo, division of labor between such countries leads to anincrease in the productivity of labor in both the countries which inturn proves to be beneficial to both the parties in the long run(Wadeson, 2013). What Ricardo’s theory of comparative advantagemeans is that countries would benefit more if they direct theirefforts towards the production of goods and services that their laborforce can best produce.
Similaritiesand differences between Smith’s and Ricardo’s view on division oflabor
BothSmith and Ricardo are of the view that division of labor hasbeneficial consequences on the production of goods and services.According to Smith, division of labor leads to increased efficiencyin production in which the same number of workers can produce ahigher number of commodities compared to when the tasks involved inthe production are not divided among the workers (Smith, 1961).Ricardo is also of a similar view, pointing out that countries canproduce more of a given product and at a cheaper cost if they importthose commodities whose comparative labor costs are high. BothRicardo and Smith agree that division of labor leads to lowered costsof producing goods and services (O`Brienand Williams, 2004).
BothSmith and Ricardo highlight how the concept of division of labor isconnected to free trade. They both hold the view that division oflabor eventually leads to increased efficiency and the volume ofgoods and services produced by different groups of people. One groupwill have more of one commodity but less of another commodity,thereby necessitating the exchange of the commodities between the twogroups. It thus follows that division of labor forms the basis oftrade and both the parties can best benefit in conditions where thetrade is not restricted by certain barriers (O`Brienand Williams, 2004).Ricardo’s argument about the benefits of division of labor islargely based on Smith’s theory of productivity. Just like Smith,Ricardo is of the view that division of labor leads to increasedproductivity due to the improvements in the skills of an individualwho has specialized in a given task as well as the discovery of newmarkets. Both the economists acknowledge the important role thatextending a market plays in improving labor productivity. Smithargues that a bigger market leads to greater specialization anddivision of labor while Ricardo is of the view that extension offoreign trade through the discovery of new markets leads to a highermass of commodities.
Thereare a number of differences between Smith’s and Ricardo’sperspectives on division of labor. Smith points out the main sourcesof division of labor, which Ricardo does not highlight. According toSmith, division of labor comes about as a result of habit, custom andeducation, self-love as well as the natural propensity of people totruck, barter and trade (O`Brienand Williams, 2004). Despite both Ricardo and Smith making a comparison between thephysical input and physical output as a result of division of labor,Smith makes a comparison with regard to the same product whileRicardo’s comparison involves the output of two different productsproduced by two different nations. Smith sees specialization as adeliberate choice that people have to make. On the other hand,Ricardo sees specialization as a given ability. According to Smith,people are similar in many ways, but they choose to specialize inmany different ways since they can perform better by specializing(Durkheim, 2014). On the other hand, Ricardo highlights the role thatnature plays in ensuring that different nations have varyingabilities to produce certain commodities.
Theconcept of division of labor has been widely discussed by variousscholars. . Division of labor is not a modern concept, and its origincan be traced back to ancient civilization. However, societiesstarted to be aware of the concept starting from the 18thcentury. It involves breaking down complex processes of productioninto several simpler tasks, which each task being carried out by aperson who specializes in the said task. Classical economists,including Adam Smith and David Ricardo, played an important role inexplaining and expounding on this concept. In his discussion ofdivision of labor, Smith points out the main reasons and resourcesfor specialization and division of labor. His main argument is thatdivision of labor leads to increased productivity and that the marketplays an important role in shaping specialization and division oflabor. Ricardo’s ideas on the division of labor largely build onSmith’s ideas. According to Ricardo, goods and services are valuedaccording to the quantity of labor required to produce them. Ricardoargues that the value of the goods and services can be enhancedthrough foreign trade since the relative value of goods is differentacross different nations. Specialization emerges as a result ofdifferent ways in which nature has bestowed each country withpeculiar powers and abilities to produce different commodities.
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