Division of labor

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Definition

Broadly, division of labor refers to the phenomenon where different individuals or agents, through mutual agreement, focus on different (qualitatively different) components of a composite task. It could operate at multiple levels:

  1. Within an organization, in a project or production process
  2. Within multiple organizations collaborating on a project or production process
  3. In an economy as a whole
  4. Between multiple economies that interchange and trade

Related notions

  • Comparative advantage explains why division of labor is useful since it exploits relative skill differentials and other relative advantage differentials, even if one individual is better than the other at every task in isolation.
  • Specialization creates an added incentive for division of labor -- if each person does a specific task, that person can cohose to specialize more in that task and further improve his or her comparative advantage in that task.