Production & Efficiency

In the decade ahead I can predict that we will

provide over twice the productivity improvement
that we provided in the 90's.
Bill Gates, speaking in Las Vegas in 2001

Lesson Objectives
By the end of this lesson you will:

Be familiar with the ideas of specialisation and the division

of labour

Be able to state the main advantages and disadvantages of

organisation production via the division of labour

Recognise that the role of the market and trade and how
this is connected to specialisation

Be able to state the differences between production and

productivity

The Paper Chain Production Company

You are applying for a holiday job working for a company that
manufactures paper chains for use as decorations in large
halls.
In order to get the job you must pass a trial demonstrating
your ability to work at the required work rate.

The rules for making the paper chains

The paper chains must be made to a regulation standard

Each link in the chain must be 15cm x 5cm.

The links must be cut out using scissors.

Each link must be coloured in using one of the crayons supplied by

the Paper Chain Production Company.

The links in the chain must be glued together using the glue
provided by the Paper Chain Production Company.

A link cannot be joined to another link of the same colour (I.e. RedBlue-Red is ok but red-Red-Blue is not).

The Paper Chain Production Company

You will be working individually to produce as many

links in a chain as you can during the trial period.

The trial period lasts for 10 minutes precisely.

After the 10 minute trial your chain will be checked to

ensure the links are of the required standard.

The worker with the highest productivity will be

employed by the Paper Chain Production Company.

The Paper Chain Production Company

In reality one person does not do all of the jobs in the

production process.

Instead the production is split into the following 4 tasks:

Measuring out
Colouring in
Cutting out
Gluing and join the links together

The Paper Chain Production Company would now like to

test your ability to work as part of a production line.

You will now have a further 10 minutes to complete this

trial.

The results of the trial?

How

many completed links were you

able to produce working individually?

How

many were you able to produce

working as part of a production line?

Why

do you think it was more efficient to

specialise and divide up the tasks?

Robinson Crusoe

The islanders from Lost

Subsistence

If you were to be marooned on a desert island you would

be forced to live a Robinson Crusoe like existence. You
would have to do everything for yourself. If you wanted
food you would have to produce it yourself. Economists
refer to this as SUBSISTENCE.

Subsistence is defined as
groups within societies attempting, through their own
labour, to produce enough food and basic produce to
survive

There are still societies living today who live in such a way
(e.g. farmers in the Third World).

What have the following got in common?

The

New York Stock Exchange

What have the following got in common?

A fruit

& vegetables stall in Morocco

What have the following got in common?

Ebay

UK

What have the following got in common?

A cattle

auction in Australia

Surpluses and Trade

Subsistence economies that become more successful are able to

produce more goods than they need for their immediate survival.
This leads to stocks and SURPLUSES.

These surpluses could be TRADED with other groups producing

surpluses.

This led to the first TRADE. Early trade was by BARTER until the
emergence of forms of MONEY (about 3000 yrs ago).

This combination of surpluses, money and growing trade led to

the development of MARKETS (a place where a buyer and seller
comes together).

Barter and Money

Barter:

swapping one good for another

Money

anything which is widely accepted as payment for

goods received, services performed or repayment
of past debt. In modern economy, it ranges from
notes and coins to money in bank accounts and
deposits in building society accounts

Specialisation
The

development of trade and markets

removed the reliance on subsistence
economies. People could now SPECIALISE.

SPECIALISATION

can be defined as:

the production of a limited range of goods by an

individual or firm or country in co-operation with
others so that together a complete range of goods
is produced.

Benefits of Specialisation

BENEFITS OF
SPECIALISATION

Adam Smith- the father of economics

Division of Labour
Specialisation

by individuals is called the

DIVISION OF LABOUR.

It

was described by the great Economist,

Adam Smith, in his famous book An Enquiry
into the Nature and Causes of the Wealth of
Nations (1776). Smith identified the practice
amongst pin workers.(for further info see
Economics, 3rd edition Anderton (2000), p10)

Advantages of the Division of Labour

Practice

makes perfect- people who do one

relatively simple job become very efficient at
doing that job

No

time is wasted in moving from one job to

another

A saving

of equipment. Workers who

specialise do not require a full set of tools but
just the specific tools for their task

Advantages of the Division of Labour

Training

take less time as it is far quicker to

train a person to do just one job

There

is a saving of skill as specialisation

creates many different occupations, each with
specific skills required.

It

is possible for a greater degree of

mechanisation. Breaking down a complex
process into simple tasks has allowed many of
these tasks to be done by machines.

Problems of the Division of Labour &

Over-specialisation
Monotony

and lack of job satisfaction- If jobs are

divided up too much then they can become
tedious and monotonous (e.g. working in
McDonalds) This can lead to workers becoming
alienated from their work, poorer workmanship,
mistakes and lower productivity.

Loss

of flexibility- over specialisation can make it

difficult for workers to switch to performing other
tasks. This can lead to difficulties, e.g. if sickness
makes it necessary to cover for a colleague.

Problems of the Division of Labour &

Over-specialisation

The size of the market can limit the division of labour

too. E.g. a village shop owner may want to specialise
in health food but has to sell other products as well.

Over specialisation can lead to problems if the skills

become no longer wanted (e.g. the mining industries
in the North of England).

Another problem with specialisation is that a

breakdown in part of the chain can lead to major
problems in the system.

Moves away from specialisation

Modern

technology and the extensive use of

the division of labour has led to enormous
increases in the output of goods and services
possible.

However

the loss of job satisfaction has led to

many firms considering various projects aimed
at achieving job enrichment by enlarging the
role and responsibilities of the workers.

Moves away from specialisation

For

example Volvo, the Swedish car

manufacturer, moved away from specialisation
and found that by allowing workers to
undertake a number of different tasks they
could:
Increase the workers enjoyment of their jobs
Identify their individual strengths
Increase their ability to make suggestions for
improving production methods and the product
Enable workers to cover for sick colleagues
Increase labour flexibility

Production & Productivity

Production:
the process of transforming the economic resources.

Productivity:
output per factor

Labour Productivity:
output per worker/hour

Productive capacity:
The maximum possible output that can be produced with
exiting resources and technology

Factors that determine productivity

Specialisation allows enables workers to gain skills in a narrow

range of tasks. This enables individual workers to be far more
productive than if they were jack of all trades.

The division of labour makes it cost-effective to provide workers

with specialist tools.

Time is saved when a worker is not constantly changing tasks and

moving from place to place

Workers can specialise in those tasks to which they are best suited.

A more educated and better trained labour force will increase

productivity