Risks of Specialization

Max Kellerman: You and me, Tito. We've seen it all, eh? Bubba and Zedda serving the first pasteurized milk to the borders. Through the war years, when we didn't have any meat. Through the Depression, when we didn't have anything.
Tito Suarez: Lots of changes though, Max. Lots of changes.
Max Kellerman: It's not the changes so much this time. It's that it all seems to be ending. You think kids want to come with their parents and take fox trot lessons? Trips to Europe, that's what the kids want. Twenty two countries in three days. It feels like its all...slipping away.
--Dirty Dancing

Previously we discussed the benefits associated with specialized work. What about potential downsides? One risk is restriction of trade. In order to realize gains from specialization, specialized producers must be able to trade with each other. By engaging in trade, specialists can satisfy needs that they are unable to fulfill themselves. They also benefit from the increased productivity of other specialists. Prices should be lower and quality should be higher when specialists trade.

When trade is restricted (e.g., tariffs), then specialists must either forego some needs or diversify. Either way, standard of living is likely to decline. 

Another risk is obsolescence of one's specialty. Due to competition, technological change, or evolving buyer preferences, certain lines of work may longer be valuable on the market. To adapt to such disruptive change, specialists must learn new skills.

While the 'switching costs' associated with changing jobs may be relatively low for some specialists, they may be extremely high for others. Much retraining may be required. If large commitments were made to build previous now-obsolete skill sets (expensive schooling, investment in expensive narrow-purpose tools, etc) then those specialists may have difficulty justifying a career change due to high sunk costs. Moreover, the repetition associated with specialized tasks can be habit forming...and old habits sometimes die hard.

How can workers cope with the risk:reward trade-off associated with specialization? We'll discuss in a future post.