Population, Specialized Occupations and Semi-Endogenous Growth

The division of labour may be defined as ‘the division of a process or employment into parts, each of which is carried out by a separate person’.1 Adam Smith2 put this idea at the forefront of his inquiry into the nature and the causes of the wealth of nations. He thought of the division of labour as an important source of gains from specialization that increase the productivity of labour and, therefore, account for the growth of per-capita income. Smith’s central claim is that the division of labour depends upon the extent of the market.3 The extent of the market is also at the heart of Allyn Young’s view of the growth process.4 Unlike Smith, his emphasis is on specialized inputs and the associated gains from specialization, which he sees to be more likely to occur in larger markets.5 A version of the neoclassical growth model is developed with an endogenous savings rate in the spirit of Ramsey,6 Cass,7 and Koopmans8 that incorporates gains from specialization in the sense of Smith and Young.9 These gains act as a countervailing force to diminishing returns to capital such that the model exhibits endogenous growth. The steady-state growth rate of per-capita magnitudes features the key parameters of the analysis: gains from specialization, differentiated activities in which the labour force specializes, and the population growth rate, which determines the evolution of the size of the market.