What Is the Meaning of Specialization in Economics?

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Economics is about the production, distribution and consumption of goods. A key decision facing workers, firms and nations is what goods to produce. The economic concept of specialization helps answer this question. Under specialization, economic actors concentrate their skills on tasks at which they are the most skilled. Specialization has both micro- and macroeconomic applications.

Specialization in the Workplace

  • Specialization in an economic sense refers to individuals and organizations focusing on the limited range of production tasks they perform best. This specialization requires workers to give up performing other tasks at which they are not as skilled, leaving those jobs to others who are better suited for them.

    Specialization is related to another economic concept, division of labor, discussed at great length by Adam Smith, the 18th-century Scottish economist and author of “The Wealth of Nations.” Smith illustrated the benefits of specialization and a division of labor when describing a pin factory, in which each worker performs a single specialized task. One worker measures wire, another cuts it, one points it, others make the head and so on. Through this process, workers produced thousands more pins than if each worker made whole pins independently.

Effect on Production

  • Specialization, as illustrated by Adam Smith’s example of the pin factory, allows workers to develop more skill in their specific tasks. Specialization increases output because workers do not lose time shifting among different tasks. Smith also believed workers with specialties were more likely to innovate, to create tools or machinery to make their tasks even more efficient.

Benefits

  • The benefits of specialization extend beyond individual workers as well. Firms that specialize in their particular products can produce larger quantities to sell. Those firms and their employees use the proceeds from the sale of those goods to buy needed goods produced by other workers and companies.

Economic Thinking

  • While Adam Smith saw the advantages of specialization and division of labor, he saw a downside to them as well. He feared that monotonous assembly lines in which workers performed single tasks throughout the day could sap their creativity and spirit. He saw education as a remedy and believed that education fostered creativity and innovation in workers. Karl Marx seized on Smith’s concerns in his writings on economics. He saw monotonous production tasks, coupled with subsistence wages that do not represent the full value of labor, as factors that increase worker alienation, eventually resulting in a worker-led uprising against the capitalist class.

Macroeconomic Specialization

  • Specialization in economics is not limited to individuals and firms, the realm of microeconomics. It also has applications in macroeconomics, which studies the economic actions of nations, regions and entire economies. In a macroeconomic context, specialization means nations concentrate on producing the goods in which they have the most advantage while engaging in trade with other countries to obtain other goods.

    David Ricardo, an economist of the 18th and early 19th centuries, argued for specialization based on comparative advantage, which helps determine whether it is more beneficial to domestically produce a good or import it. Suppose, for example, that the United States produces clothing and computers more cheaply than India. While the United States would appear to have an absolute advantage, it may not have a comparative advantage, which measures the ability to produce in terms of opportunity cost.

    Because resources of production are limited, the opportunity cost of producing computers means fewer clothes are made. Compared to what has to be sacrificed, the country should specialize in producing the good in which it has a comparative advantage, while importing the other product.

References

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