OUTSOURCING AND THE DIVISION OF LABOR.

OUTSOURCING ANDTHE DIVISION OF LABOR. The Economist reports on two (here and here) new studies of outsourcing which elaborate on Adam Smith and David Ricardo. The papers take the example of the pin makers celebrated by Adam Smith. Making pins requires a variety of tasks: cutting, drawing and straightening the wire, fashioning the head, affixing the head, whitening and sheathing the finished pin. The new studies argue that the reduction in transport costs has made it cheaper to move some of the tasks in a process offshore. For example, the fashioning and affixing of the head of the pin might be moved abroad (The Economist uses the example of Japanese assembly lines moving to China. Grossman and Rossi-Handsberg give the example of a Barbie doll, designed in the United States with hair manufactured in Japan and assembly in Malaysia.). The Economist refers to this as “the second great unbundling” with the “first great unbundling” being the use of international trade to unbundle production from consumption of final products. Baldwin dates the first great unbundling (based on trade in goods (or bundles of tasks) as occurring in a wave from 1850 to 1914 and the second great unbundling as beginning in the 1960’s.