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LABOR AGREEMENT: A formal, official, legal contract between a firm and the labor union representing the firm's employees. Such an agreement stipulates the various aspects of employment, including wages, fringe benefits, vacations, layoffs, promotions, and grievance procedures. The terms of the agreement are generally negotiated through the collective bargaining process. Should the collective bargaining process breakdown, the terms of the labor agreement might be helped along through a third-party mediator. If this doesn't help, then the labor union might call a strike or the firm might impose a lockout. Once in effect, any questions about the terms of the agreement are often subject to arbitration.

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DIVISION OF LABOR:

A basic economic notion that labor resources are used more efficiently if work tasks are divided among different workers. This allows workers to specialize in production as each becomes highly skilled at specific tasks.
Efficiency achieved through specialization and the division of labor was popularized by Adam Smith in his classic work, The Wealth of Nations.

Specialization and Production

Suppose, for example, that Patrick Pennington plans to provide pizza to the people of Pittsburg by building a pizza parlor that employs 10 pizza workers. Patrick could, if he so chose, train each worker to perform every pizza-related task--waiting tables, kneading dough, spreading sauce, slicing meat, accepting payment, washing dishes, etc. And Patrick would likely produce an ample quantity of pizza to the people of Pittsburg.

But, Patrick's employees would likely perform more productively if he trains each in a specific task. One takes orders, another kneads the dough, a third spreads the sauce, etc. As each worker concentrates on a given task, each becomes more proficient. The workers waste less time running around the pizza parlor bumping into each other. They learn the best, more efficient, ways to do their specific jobs. All-in-all, Patrick gets more pizza per worker, and the pizza consuming people of Pittsburg are positively pleased.

A Complex Economy

This division-of-labor notion is one of those concepts that is so fundamental to the economy that its importance is occasionally overlooked in the real world. Without the division of labor, the comfortable living standard currently provided by members of the exceeding complex economic system would not be possible.

For example, complex goods involving hundreds or even thousands of production stages, components, and intermediate goods could not be produced without specialization and the division of labor. Or if produced, they would be incredibly expensive. Automobiles, airplanes, computers, motion pictures, processed foods, and even education are but a few examples of products that probably would not exist without the division of labor.

Foreign Trade

Foreign trade is a key area of economic activity in which the division of labor is important and often overlooked. Trade among nations, like trade within a nation, improves living standards as workers divide up production tasks. In particular, suppose the workers in one nation specialize in agricultural productions while the workers in another nation specialize in manufactured products. When they trade these products each nation is better off.

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Recommended Citation:

DIVISION OF LABOR, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2022. [Accessed: May 28, 2022].


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