Lesson: What Is Economics and Why It Is Important 

Why the Division of Labor Increases Production

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  • Division of labor is when the production of a product (good) is broken down into separate tasks. Each worker performs one or more tasks.
  • Specialization and division of labor usually increases the productivity of workers. When one person works by themself, they are not as efficient as when a group of people work together. More goods are produced when each member of a group works on a specific task.
  • Specialization leads to more reliance (dependence) among producers and consumers.

When we divide and subdivide the tasks involved in producing goods or services, workers and businesses can produce a greater quantity of output. In his observations of pin factories, Smith noticed that one worker alone might 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 with pin-making), could make 48,000 pins in a day. How can a group of workers, each specializing in certain tasks, produce so much more than the same number of workers who try to produce the entire good or service by themselves? Smith offered three reasons.

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