Labor Specialization and the Extent of the Market
Author(s): Sunwoong Kim
Source: The Journal of Political Economy, Vol. 97, No. 3 (Jun., 1989), pp. 692-705
Published by: The University of Chicago Press
Stable URL: http://www.jstor.org/stable/1830461
Accessed: 29/05/2009 17:40
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Labor Specialization and the Extent
of the Market
Sunwoong Kim
Bryn Mawr College
This paper presents an analytical model of labor specialization.
Workers make human capital investment decisions on the depth and
the breadth of their skill. Given that firms have diverse job require-
ments and increasing returns to scale, workers invest more f-or the
depth of their human capital and less for the breadth as the size of
the labor market increases. Also, the larger the size of the market,
the more varieties of job requirements are used so that the average
match between a worker and a firm improves.
I. Introduction
In the Wealth of Nations, Adam Smith (1776) attributes the greatest
improvement of industrial labor productivity to the division of labor.
Ironically, by emphasizing the division of labor as a source of increas-
ing returns to scale, he established a convincing argument that con-
tradicts the competitive price theory that is the basis of his other
important theorem that individual rationality and self-interest add up
to the social good. It is unfortunate that modern economic theories
have focused their attention on the latter theorem and ignored the
importance of the former. The following are the important excep-
tions.
I am indebted to Peter Diamond, Brent Kigner, Jerry Rothenberg, Bill Wheaton, and
two anonymous referees for their guidance, comments, and suggestions. Discussions
with the members of the Labor and Household Economics Workshop and Regional
Science Theory Workshop of the University of Pennsylvania were also very helpful.
Any remaining errors are mine.
Journal o( Politircl E(towmy, 1989, vol. 97. no. 31
? 1989 by The Universitv of Chicago. All rights reserved. ()022-3808/89/9703-0004$() 1.50(
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