Division of labour is defined as the breaking down of a production process into a number of separate operations, whereby each operation is undertaken or performed by one person or a group of persons.

Division of labour is a complex process mainly practised in industrialised communities where a worker specialises in the production of a small portion of a product and he may not see the end product and may not make use of it. Division of labour, for example, exists in the publishing industry where each worker or group of workers or individuals are involved in writing of manuscript, typing of manuscript, editing, filming and plating, printing, folding, collating, sewing, binding and finally trimming. It is the joint effort of all these groups of workers that enables a complete book to be produced.



Specialisation is defined as the concentration of the productive efforts of an individual, a firm or a country in a given aspect of economic activity or on a particular line of production in which it has the greatest advantage over others. Specialisation is the performance of a single job or economic activity in which an individual, firm or a country has comparative advantage.

Division of labour is one aspect of specialisation. Specialisation is a result of division of labour.



  1. Specialisation by process: This is the type of specialisation in which a production process is divided into different operations or stages and each worker, or firm or country now concentrates on only one operation or stage. For example, a firm -a printing company – may concentrate on the printing stage or aspect of a publishing outfit.
  2. Specialisation by sex: This is the type of specialisation in which certain occupations are exclusively either for males or females as dictated by custom, tradition or by law. For example, men are mainly involved in driving of trailers while women may be involved in local weaving of traditional cloth called Aso Oke in Yoruba land.
  3. Specialisation by product: This is the type of specialisation in which a producer (individual or a firm or government) concentrates on the production of a particular commodity. For example, a firm may concentrate on the production of malt drink and an individual farmer can concentrate on the production of poultry eggs.
  4. Geographical or territorial specialisation: This is the type of specialisation in which certain geographical region or territory specialises in the production of a particular commodity. This specialisation is made possible in this region as a result of the type of climate and natural resources available in the area. For example, the presence of petroleum in the Niger Delta region enables the area to specialise in the drilling of petroleum.



  1. Increase in production: Division of labour and specialisation lead to increase in production because the various experts along the production process work together to boost greater production.
  2. Time saving: Division of labour helps to save time that would have been wasted in moving from one operation to another.
  3. Development of greater skill: Division of labour enables each worker to develop greater skill through repetition of the same process.
  4. Large scale production: Division of labour and specialisation lead to large production of goods or products.
  5. Lower unit cost: Since division of labour leads to greater productivity, that is, large quantities are produced and in less time, the unit cost of the product will be less.
  6. It leads to specialisation: Division of labour makes one to be a specialist in the performance of a particular job.
  7. Economy in the use of tools: Division of labour makes possible the full and efficient use of tools and machines since they are handled by specialists.
  8. Less fatigue: In division of labour a worker concentrates on only a portion of the production and since he makes use of machines and work together with others, he does not get tired easily.
  9. Production of standard goods: Division of labour and specialisation help to produce standard goods which possess the same specifications like size, colour, shape and weight.
  10. Creation of employment opportunities: Division of labour helps in the employment of people who are experts to handle the various stages of production in a firm.
  11. Development of technology: Through the use of machinery, different types of technology are developed to further facilitate production.

The above factors or advantages will encourage entrepreneurs to adopt division of labour in production.



  1. Monotony or repetition: In division of labour, a worker performs the same job on daily basis, the job therefore becomes monotonous and boring to him and this may lead to loss of interest in the job being done.
  2. Decline in craftsmanship: As a result of the use of machines in division of labour, people no longer make use of their skills in the production of goods, rather, they become machine-minders.
  3. Reduction in employment opportunities: In division of labour, machines are usually used with few workers. This tends to reduce the level of employment among the workers.
  4. Reduction in employment opportunities: In division of labour, machines are usually used with few workers. This tends to reduce the level of employment among the workers.
  5. Problem of mobility of labour: Under division of labour, a worker stays on a single job for a long time and this makes it difficult for him to move to other jobs.
  6. Problems from increased interdependence: Division of labour has meant that workers and industries may have to depend on one another before production can take place. Absence of such a worker or industry may result in the closure of the entire production.



Many factors limit the importance of division of labour and specialisation. These factors may either encourage or discourage the division of labour depending on whether they are favourable or unfavourable.

  1. The size of the market: If the size of the market is large and it can absorb all the quantities of goods produced, then division of labour is favoured. But in a situation where the market is small, division of labour is not encouraged.
  2. The nature of the products: Products that can be broken down into stages will require division of labour whereas products that cannot be broken down into stages, e.g. driving, barbing and hairdressing. tend to limit the importance of the division of labour in production.
  3. Level of technology: The level of technology sets a limit to the extent of specialisation. New technological breakthrough may allow further specialisation and division of labour.
  4. Availability of capital: Capital must be available in sufficient quantity to enable adequate payment of salaries and wages to workers and other materials to be purchased.
  5. Availability of labour: The availability of qualified workers determines the stages into which production process will be divided. Lack of qualified labour limits the advantages of division of labour in production.
  6. Government policy: Certain government policies can determine whether division of labour can operate or not. Where government policy favours large scale production, division of labour is bound to operate.
  7. Development of commercial sector: A well developed commercial sector demands high volume of products and such high volume of products can only be met through the adoption of division of labour.



It is often said that division of labour necessitates exchange. Division of labour in this case refers to specialisation, that is the concentration of individuals, firms or geographical areas in the production of a particular commodity.

Specialisation, therefore, makes interdependence of people, firms and geographical areas possible thereby resulting in exchange of goods. Large quantities of goods are produced as a result of division of labour and these goods have to be exchanged for other commodities which the person, firm, state or region does not produce. For example, a tailor needs the rice produced by the farmer while the farmer needs the clothes produced by the tailor. If there is no specialisation, people, firms, and geographical areas will produce goods for themselves alone and there will be no need for exchange. The large quantities of products produced as a result of division of labour have to be exchanged for other commodities which the person, firm, state or geographical area does not produce. Since the various economic units produce only one or a few products, their need to satisfy other wants makes exchange necessary. Production can also be made on a large scale in order to meet the requirements of others who do not produce that commodity.



A firm may be defined as an independently administered business unit which is capable of carrying out production, construction or distribution activities. It forms an industry with other firms performing or producing complementary goods and services. Firms may be small or large depending on capital outlay and the level of production.


Characteristics of small and large firms

The characteristics of small and large firms are summarised in the table below.



Economies of scale can be defined as the growth of a firm as a result of the expansion of the volume of productive capacity resulting in the increase in output and a decrease in its cost of production per unit of output.


Types of economies of scale

There are two major types of economies of scale. These are:

  1. Internal economies and internal diseconomies.
  2. External economies and external diseconomies.



  • Internal economies, also popularly known as the economies of large scale production, is defined as the advantage which a firm derives or obtains as a result of its increase in size and expansion of its output. As the size of the firm increases or expands, this will lead to greater efficiency and a resultant fall in the cost per unit of output. These advantages being enjoyed by this firm could come from financial, managerial, or technical large scale production which takes place within the firm.
  • Internal diseconomies on the other hand can be defined as the disadvantages which a firm undergoes as a result of expansion, resulting in less efficiency and increase in the cost per unit of output as a result of managerial problems.



  1. Financial economies: A large business firm or unit can easily raise fund from banks or other sources, purchase raw materials in bulk at a cheaper rate and this will affect the cost of the finished product.
  2. Administrative economies: As a result of a sound financial base, a large business firm is capable of employing experts and competent managers to manage the firm efficiently.
  3. Research economies: A large firm, as a result of its size and strong financial base, is able to carry out research work into new areas in order to improve production.
  4. Technical economies: This is the application of modern machines coupled with the employment of technical experts who handle these machines for positive result. This is only possible with the large firms.
  5. Specialisation economies: As a result of increase in size and strong financial base, a firm, through division of labour, enables individuals to specialise in certain operations.
  6. Welfare economies: A large firm is able to raise efficiency of labour through improving the conditions under which people work by providing them with canteens, recreational facilities, medical facilities, etc.
  7. Risk-bearing economies: A large firm is more likely to withstand losses as a result of certain risks taken than a smaller firm.
  8. Marketing economies: A large firm can buy raw materials in bulk, produce in large quantities and distribute to many areas where they are required.



  1. Extent of the market: When there is a high demand for certain products of a firm, this will motivate the firm to produce more goods and expand.
  2. Availability of capital: The availability of adequate capital and other resources will enable a firm to expand and produce more goods, but when these resources are not available, growth and expansion are impossible.
  3. Falling price of the commodity: A falling price of the commodity without corresponding increase in supply definitely tends to lower the scale of production.
  4. Increased risks: It is known that the bigger a firm, the greater the level of risks and vice versa. In order to reduce risks, the size of the firm has to be reduced.
  5. Need to cater for individual taste: Large firms are known and associated with standardisation of products, which does not meet the taste of individuals. To meet this taste, there will be limitations in the scale of production.
  6. Nature of business: The nature of business is directly related to the scale of production. When a large number of people demand for a particular commodity, it will require a large firm to handle it but when a personal service ofa barber is required, the size of the firm must be small.
  7. Nature of the firm’s product: If a firm’s products are of inferior and perishable type, their size and growth are definitely going to be limited.
  8. Increasing management costs: When a firm embarks on large scale expansion, there is a corresponding employment of managers and this tends to increase the cost of production of such firms.



  • External economies are the benefits a firm derives from concentration or localisation of industries in a particular area. In other words, these are the benefits a firm enjoys from increase in its output and decrease in cost as a result of the kind of assistance it derives from other firms within the same location. External economies are mostly derived from industrial estates where there are many firms operating in the same location.
  • External diseconomies on the other hand refer to the disadvantages a firm experiences when the activities of one or more industries increase the cost of production or output of that firm within the same location.