Division of Labor, Efficient? Empirical Evidence to Support the Argument

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Most discussions on free market economics, competitive capitalism, roles and functions of management, and basics of productivity begin with Adam Smith's pin factory and the division of labor (Smith, 1973 [1776]). The division of labor is central to the fields of sociology, economics, political economy and, of course, management. Smith documented the basic sources of the efficiency accruing from the division of labor: (a) worker dexterity, (b) saved time in moving from task to task, and (c) better techniques and machines. It was this theorem of Smith on the division of labor that economist Allyn Young called "the most illuminating and fruitful generalizations which can be found anywhere in the whole literature of economics (Young, 1928, p. 529)."

Approximately 50 years after Smith, Charles Babbage (Babbage, 1832, pp. 175-6) added the fourth source of efficiency: cost-reduction. This cost-reduction factor was an essential complement to Smith's earlier arguments. Where Smith had showed how it was possible to increase productivity through influencing the performance of labor, Babbage was the first to explain how the same process could increase profitability by reducing the cost of labor (Kelly, 1982). The concept is generally credited with the large-scale increases in labor productivity that have enabled Western economies to enjoy their high state of industrial development and well being.

However, division of labor does not proceed without end. It is constrained by the extent of market efficiencies (Smith, 1937 [1776]). The extent of the market can be demonstrated by the division of work (Corsi, 1991): If work is thought of as divided into a set of tasks, a firm which produces one item a day might have one worker doing all the tasks; if output expanded to two items, it would have two workers, each doing half the tasks; at three items, it would have three workers doing one-third the tasks, and so on until each worker did a single task. By extension, the optimal market from this point of view is one so large that each worker can be fully employed performing a single diminutive operation. Markets tend to be reached before this point and thus provide a cap on the degree of the division of labor. This cap comes from the concepts of increasing returns and diminishing returns. One continues to divide labor to seek greater returns. However, as Stigler noted (1951), there are other functions, subject to diminishing returns, which will raise costs higher than those saved by the division of labor. Putterman provides an excellent summary of these problems (Putterman, 1990, p. 55):

Overspecialization of tasks can breed boredom,

alienation, and ignorance among workers. Specialization

means interdependence, which in turn means

vulnerability to the potentially hostile actions of

others. A complex, specialized economy requires a

coordination mechanism, and the known candidates

(markets and planning, where the latter includes

hierarchy at the workplace) may each have its

drawbacks. Differentiation of tasks and roles

appears to be associated with differences in incomes,

social status, and economic and political

power, and ethically or socially preferred rules of

equitable income distribution may be in conflict

with the need for incentives to work and invest.

These problems frame the dilemma for every manager who faces the work-division task. As Walker noted (1993), the necessary counterpoint to the division of labor is the integration of labor. Every effort to de-skill a job involves the retention of highly skilled labor who can work the mechanisms of coordination and logistics who can handle and process the vast quantities of information, and who can integrate the complex levels of technical knowledge necessary to orchestrate these divided, automated, and distant operations. …