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Most economists from Adam Smith onward have sung the praises of the division of labor. It has even been said that the more specificity a labor pool is the more advanced the economy. A more productive economy has more task specialization. However, doesn’t the law of diminishing turns apply even to the division of labor? At some point,  does specialization shift beyond the equilibrium point of the utility function / production frontier and result in inefficiency?  I am not the biggest fan of neoclassical methodology, but in certain areas of economic life, Pareto-efficiency makes sense. It should not be rigidly applied without any qualitative context. That only provides us with a one dimensional account of economic activity.

At work, I am being assigned to help out with some of the workload in our parent division of the company. I can’t help but be awed by how inefficient their process is. This is where my observation of applying the law of diminishing returns to the division to labor becomes pertinent. The way the process was devised for processing orders for the headquarters of our company, requires actions to be passed off to multiple teams. The total process can take up to forty-eight hours. The process that was originally trained on, takes only four hours and a transfer between only two departments to complete.  Does having a hyper-diversified and stringently delineated process help the customer? I would argue that it does not. Giving tasks that could easily be done by one person to three people means there could be a time gap in between task serving only to make the process more lethargic. Making the premise of utilizing a  proverbial “assembly line” method counterproductive and detrimental to the customer.

16 thoughts on “The Law of Diminishing Returns Applied to The Division of Labor

  1. Tyler Cowen makes a similar point at the end of his “big business: love letter to an anti-hero” book about how inefficient it is to, say, order a computer or office chair at one’s work versus just going on Amazon and buying it for yourself! Here, alas, is where Coase went wrong: he said firms are about reducing “transaction costs” but this is not true in many cases.

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    1. The problem with internal operations in many corporations is that they are very bureaucratic. Hence, leading to inefficiency. The company needs to tow a line with the compartmentalization because as soon as it impact the customer you have problems.

      I forgot what podcast I was listening to, but the commentary (who I believe was an academic) claimed that the last vestiges of fascism laid in the operation of 1950s-era corporations. Only serving to support my theory that companies often resemble governments. Hence, why any time you call a customer service line you generally get poor service, etc.

      Liked by 1 person

  2. Interesting.

    Shouldn’t the principle of the division of labor only be applied where it would actualize greater efficiency? This production line you write about seems to be “all show and little go”, so to speak, (please correct me if I’m wrong).

    Liked by 1 person

    1. It’s not a literal production line, however, the way the order is passed long from team to team is almost like a digital one. At least with tangible production if someone is slacking or too slow is extremely obvious, whereas in office work it is easy to bury inefficiency to a point.

      I would agree, that job function specification should only be applied if it is beneficial. I suppose like anything else it there are limitations on the benefits of role specificity.

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    1. This an observation I would have never made if I had never worked in an office environment. After years of seeing examples of “workplace” rent-seeking, virtue signaling, social loafing, and other varieties of obfuscation it becomes evident there are many ways to hide work avoidance. Especial with intangible transactions. On a construction site, yes there still is politics, at the end of the day either the job was completed or not completed. In some stances, in an office it can take months or years to detect underperforming employees.

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  3. It’s a wonder that such practically impalpable inefficiencies can ever be uncovered. Since (as you highlighted) some aspects of the apparatus of a corporation mirror those found in bureaucratic departments ; like slackers, paper pushers, etc. Now with technology, the domain for unproductive activity have been broadened.

    And, on a political note, let us not forget the social obligation to maintain a so-called “diverse/inclusive” work environment. Whatever that means.

    Liked by 1 person

    1. I would surmise that the rationale behind The whole inclusion/diversity can be ideological. However, it can also be done to foster a positive public image or to avoid lawsuits. If an individual engages in sexual or ethnic harassment then they can say, “ Not our fault! Just look at our zero tolerance policy. See our diversity program. We would never tolerate such conduct.”

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