1.1.6

Specialisation & Division of Labour

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Specialisation and Division of Labour

Division of labour involves dividing the workforce and allocating specific individuals to specific tasks. It allows labour to specialise in a task.

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The division of labour

  • Modern businesses divide their labour force.
    • E.g restaurant operations like Nando's divide up their labour force.
    • There will be a business manager to oversee the process, as well as designated cooks to make the food and sometimes waiters to serve it.
  • If each person does one job a lot, they are usually better at that one job than if they did four different jobs with a quarter of their time.
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Economies of scale

  • Specialisation through division of labour allows firms to take advantage of economies of scale. So as production increases, average unit cost decreases.
    • E.g if a BMW factory made 1,000 cars each year, each car would be quite expensive.
    • If they make 50,000 each year, then it can set up an assembly line and cost per unit will decrease.
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Increasing productivity

  • In the late 1700s, Adam Smith proved through example that division of labour could boost productivity in his book The Wealth of Nations.
  • He used the example of a pin factory he visited. He said 10 workers produced 48,000 pins through specialisation. But if each individual carried out every step of production themselves, they'd only make 10-20 each. So the firm avoids employing 2,400-4,800 people through division of labour.

Advantages and Disadvantages of Specialisation

Specialisation, including the division of labour, can bring a number of benefits for the firm. It often leads to higher profits.

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Advantages of specialisation

  • Specialisation can lead to economies of scale.
    • This lowers the long run average cost for the firm.
  • Specialisation reduces the cost of training workers because they only have to be trained for their particular job.
  • Specialisation can increase labour productivity. Workers do tasks they're good at and so should produce better quality and/or a higher quantity of products.
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Disadvantages of specialisation

  • Specialised firms are often not flexible.
    • Workers may struggle to adapt and do a new role quickly if the environment changes. This is because they are only trained in their specialised skill.
  • Workers may become bored. This could reduce productivity if they start to do their work more slowly.
  • Countries may be less self-sufficient and struggle when trade suffers.

Money

Money solves the problems created by the barter system. Instead of having to find someone who had the goods you wanted and wanted your goods, money could be used instead. It has four main functions:

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Medium of exchange

  • Money is a medium of exchange between the buyer and the seller.
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Store of value

  • Money is a store of value.
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Unit of account

  • Money is a comparable unit of account.
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Deferred payment

  • Money is a standard of deferred payment.

Jump to other topics

1Introduction to Markets

2Market Failure

3The UK Macroeconomy

4The UK Economy - Policies

5Business Behaviour

6Market Structures

7A Global Perspective

8Finance & Inequality

9Examples of Global Policy

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