Specialization, along with the complementary concept of the division of labor, occurs when the innate inequalities of human productive output are intensified along different skills. An individual becomes economically specialized when he focuses his productive efforts on an increasingly narrow range of tasks. The most obvious economic impact of specialization can be seen in the tendency for individuals to choose different vocations that are more in line with their interests, skills, opportunities and education.

Adam Smith, who is often referred to as the father of economics, believed that specialization and the division of labor were the most important causes of economic progress. Total output is increased when one worker specializes in one type of activity and trades with other specialized workers, said Smith. He pointed out that specialization could occur at the individual level, along different firms or even countries.

Economic actors that specialize in a task become more proficient at it. It's the same reason why professional athletes practice before a game or why children write their letters over and over again in preschool; repetition and muscle memory increase productivity. Rather than having every actor practice at producing all different kinds of goods or services, human beings naturally tend to specialize in narrow fields and then trade with one another. This creates the division of labor.

Even if someone were naturally better at producing every kind of good or service than everyone else – what economists call an "absolute advantage" in trade – it still makes sense to specialize in just one area and trade with those who are less productive.

To illustrate why this is the case, consider the following example. An attorney has a secretary in her law office. Suppose she can type faster, file faster and use a computer faster than her secretary. When it comes to doing secretarial work, her labor productivity is higher than that of her secretary. However, that isn't her most valuable work; her most valuable work is practicing law. Every hour that she spent doing secretarial work is an hour that she couldn't spend being a lawyer, so she trades with her secretary to maximize her earnings as an attorney.

To see how specialization and division of labor improves the output of both the secretary and the attorney, imagine that the secretary has a labor productivity of $20 per hour doing secretarial work and $0 per hour practicing law. The attorney has a labor productivity of $30 per hour when performing secretarial work and $150 per hour practicing law. Even when the attorney buys $20 of labor per hour from the secretary, she is still better off by $100 because she can spend that hour practicing law (net $130 earned as an attorney versus $30 earned as a secretary). The secretary is better off accepting the $20 rather than being unemployed.

The aggregate impacts of specialization on the economy are massive. Occasionally, people who specialize in a field develop new techniques or new technologies that lead to huge increases in productivity. Increased specialization ultimately leads to higher standards of living for all those involved in economic exchanges.

  1. How is productivity calculated?

    Learn about productivity, what it measures and how to compute a company's productivity level by measuring its outputs relative ... Read Answer >>
Related Articles
  1. Insights

    What Are the Duties of the Treasury Secretary?

    The Secretary of the Treasury is one of the most powerful positions in the U.S. federal government.
  2. Insights

    Alexander Acosta

    Secretary of Labor
  3. Insights

    Trump's Executive Orders (So Far)

    Trump has been fulfilling campaign promises by issuing executive orders.
  4. Managing Wealth

    Does a Shorter Work Week Lead to Greater Productivity?

    While technology has significantly increased labor productivity, institutional changes, such as a shorter work week, could also be very productive.
  5. Insights

    Hillary Clinton's Liberal Orthodoxy

    Clinton's economic agenda laid out in July is divided into three broad groups: strong growth, fair growth and long-term growth. And her overarching goal is to "give working families a raise."
  6. Investing

    Attention Home Buyers: Why You Need a Lawyer

    Property transactions are complex and subject to specific state/local rules. Hiring a lawyer can simplify the process.
  7. Managing Wealth

    Why Keep Medical & Financial Powers of Attorney Separate?

    Representing your interests in financial matters is a very different job from communicating and advocating for your wishes with doctors.
  8. Insights

    Economics Basics

    Learn economics principles such as the relationship of supply and demand, elasticity, utility, and more!
  9. Insights

    Adam Smith: The Father of Economics

    Adam Smith is renowned as "The Father of Economics" for his work in pioneering ideas such as free trade and GDP.
  10. Financial Advisor

    How To Deal With (Seriously) Dysfunctional Clients

    Difficult, unreasonable and eccentric people seek financial planners too. Find out how to cope.
  1. Labor Productivity

    Labor productivity is a term for the output of a country's economy ...
  2. Productivity

    Productivity measures the efficiency of production in macroeconomics, ...
  3. Labor Market

    The labor market refers to the supply and demand for labor in ...
  4. Special Power Of Attorney

    Special power of attorney is a written authorization that grants ...
  5. Demand For Labor

    The demand for labor describes the amount and market wage rate ...
  6. Economic Growth

    Economic growth is an increase in an economy's ability to produce ...
Trading Center