17of19 - Human Capital and Specialization - Comparison with the Roy Model





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Published on Feb 10, 2011

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This the seventeenth lecture in the "Lectures on Human Capital" series by Gary Becker. This series of lectures recorded during the Spring of 2010 are from ECON 343 - Human Capital, a class taught every year by Gary Becker at the University of Chicago. In this class, Becker expounds upon the theory of Human Capital that he helped create and for which he won the Nobel Prize. Please see attached lecture notes, video annotations, and reading list for more information.


Professor Becker develops a model of job specialization and labor division. He stresses the importance of labor division because of the increasing returns to scale on this type of activity. He analyzes the problem of specialization using a model in which individuals are identical ex- ante and try to maximize the total output of the activities they perform.

Becker provides examples that show the great efficiency that result from division of labor and job specialization. Also, he stresses the wastes that society suffers when individuals have to perform labors in activities in which they are not experts as opposed to activities in which they are.

Professor Becker explains the differences between his model and the Roy Model commonly used in Labor Economics and explains how both models are helpful depending on the context. He illustrates what Adam Smith's quote about "the division of labor is limited by the extent of the Economy" means in the context of specialization. At the end, Becker argues that specialization or division of labor is clearly beneficial to modern economies as well.

Key concepts: specialization, division of labor, increases returns to scale on specialization, Roy Model.

Main discussions:
• The entire lecture is crucial because is a very big theme to be developed in just one class.

Main quotes:
• "The basic factor that drives specialization is increasing return to scales".
• Example of how even Michael Jordan needs to specialize [Lec 17 pt 2: 14:08-15:49]
"You have to work on and invest in your skills ... Michael Jordan was a great athlete and played basketball for a long time, but then he thought he could be a great baseball player. So he quit after great success in basketball and went into the minor leagues for a few years and try to make a second career as a baseball player... and, he basically failed completely. And now he surely had great skills and maybe if he had started at baseball in high school and college instead of specializing in basketball, maybe he would have gone on to be a great baseball player. Even when he went back to playing basketball, it took a while to regain his old form... so that shows why you have to invest in skills."

• Chapter X1: The Division of Labor, Coordination Costs, and Knowledge by Gary Becker and Kevin Murphy in Becker, Gary. 1974. Human Capital. Third ed. pp. 299-322.
• Salvador Navarro Lozano. Notes on Gary Becker's Human Capital and the Economy. pp. 21-25.


Lecture Notes:

Reading List:

Video Annotations:


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