Deep in the core of economics, lies a factory that makes pins. It was here that Adam Smith first recognized the advantages to the division of labor, or rather, the specialization of skills among individual members of a workforce. That specialization of skill, where each member of the workforce performs a unique task geared toward a particular productive end, allows for far higher levels of production than would be possible if each member of the workforce performed all the tasks needed from start to finish to produce the same outcome.
Today, as in Smith's time, we recognize the advantages and reap the benefits of the division of labor. There is the timeless story of I, Pencil and the results of a recent experiment that produced the 100-Mile Suit that confirms the inherent truths of Smith's insight. And in fact, entire institutions in society are structured to promote the limitless expansion of specialized skills and knowledge among individuals.
Those individuals, having acquired or developed those highly specialized skills and knowledge, can expect to draw greater income and acquire greater wealth throughout their lifetimes than those who have not done so to the same degree. And we see this in the growth of today's so-called "income inequality" - it's the driving factor behind it! And what's more, everyone in society benefits from the gains in efficiency that result.
So, everyone should find some field in which to specialize and do just that throughout their lives, right?
Also in the core of economics, are the effects of the seen and the unseen. Here, what is unseen in the benefits of the division of labor are the risks that come with it. Consider technological innovations, which make entire classes of previous occupations obsolete, much like the "best goddamn buggy whip" maker in the new world of automobiles.
Or consider just business as usual, where your ability to earn income through your specialized knowledge, experiences and skills comes up against an unsteady level of demand for them. Or maybe you're knowingly or unknowingly coming up against someone else's specialized knowledge, experiences and skills in direct competition. Maybe it's where you are; are you sure you're in the right place where people will seek out someone with your talents? And if not, are you willing to move to get to where those people seeking someone like you are and where you can command the greatest benefits for what you do?
Think of your acquired specialized knowledge and skills as if they were an investment. Now stop kidding yourself - they are an investment. Would you put all your investing eggs in one basket? A basket named Enron, maybe? Or maybe a basket named Starbucks? The rewards can be huge, but that's a lot of risk to have to worry about, isn't it?
Economics has the answer here too for producing the best possible outcome: as you would diversify your investment portfolio to minimize risk, you should do the same with your development of specialized skills and knowledge. By doing so, your personal well-being will be less at risk from the volatility of demand for one set of your skills.
Consider the housing market. If you're a real estate agent in a booming market, you'll very likely have little trouble making ends meet. If the housing market heads south however, and significant numbers of people begin having to go through foreclosure proceedings, odds are that you're in for a rough period in your life.
Now, what if you had the additional specialized skill of being able to appraise the value of houses. While that skill may not have delivered anywhere near the kind of money you may have earned during the boom times, it's one that might just be able to see you through the bust times. The diversification of your skills has reduced your overall level of risk and in doing so, you will have succeeded in providing yourself with a greater degree of security through diversification than you ever could have through the sole specialization of a single skill.
Taking that one step farther, who said that whatever additional specialized skills or knowledge you would seek to develop would have to have anything to do with the skills and knowledge you're using to produce your income and wealth today? There's nothing that says you only have to have oil stocks in your investment portfolio, and there's not likely much of a penalty to you as an oil stock holder to also own stocks in pharmaceutical companies. So why not have both? Or others?
And why not provide the same kind of protection to your career path in life? Why not reap the benefits of the division and the diversification of your labor?
Why not indeed?
Labels: economics, investing, jobs, risk
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