Specialisation occurs when workers are assigned specific tasks within a production process. Workers will require less training to be an efficient worker. Therefore this will lead to an increase in labour productivity and firms will be able to benefit from economies of scale (lower average costs with increased output) and increased efficiency.
Examples of specialisation and division of labour
In the process of producing cars, there will be a high degree of labour specialisation.
- Some workers will design the cars
- Some will work on testing cars
- Some will work on marketing.
- Some workers will work on different sections of the assembly line. Their job may be highly specific such as putting on tyres e.t.c.
Specialisation within economies
Specialisation can also mean that individual countries can produce certain goods that they are best at producing and then exchange them with other countries.
The theory of comparative advantage states countries should specialise in producing those goods where they have a lower opportunity cost (relatively best at producing)
Specialisation requires trade. Specialisation and trade mean that countries that produce no oil can consume oil products and countries with large reserves of raw materials can export them in exchange for other goods that they need. This helps reduce the problem of scarcity in individual countries and enables countries PPF to shift outwards.
If there is increased trade there will also be increased competition. This means that domestic monopolies will now face competition from abroad, therefore, they have increased incentives to cut prices and be efficient.
Problems of specialisation in production
However, there are problems of specialisation.
- Firstly if workers do specific tasks, it may become boring and their productivity may fall as a result. High levels of specialisation could lead to possible diseconomies of scale.
- If an assembly line becomes highly specialised, production could be brought to a halt if there is a blockage in one area. It can be beneficial if there are more people specialised in different aspects.
Problems of specialisation in trade
- In terms of trade, poor countries may be encouraged to use up their non-renewable resources to sell to developing countries, therefore in the long term we could run out of non-renewable resources.
- Over specialisation in one country can lead to countries becoming over dependent on one particular commodity, e.g. if a developing country specialises in the production of a primary product their income may be adversely effected by bad weather conditions. Some primary products have quite a low income elasticity of demand. Therefore, they don’t benefit as much from economic growth.
- Critics of free trade argue that with increased specialisation there will be intense competition to cut costs and therefore wages will have to fall. However, this point is not necessarily true because firms can compete by producing capital-intensive goods with better technology.