Division of labor is an economic concept that involves dividing a complex production task into several sub-tasks, with each task performed by a separate person or group of persons. The importance of division of labor in economics lies in the fact that a given number of workers can produce far more output using division of labor compared to the same number of workers each working alone. This is true even if those working alone are expert artisans. The production increase has several causes, including increased dexterity from learning, innovations in tool design and use as the steps are defined more clearly, and savings in wasted motion changing from one task to another.

The division of labor is the motive for trade and the source of economic interdependence. Specialized capabilities may include equipment or natural resources as well as skills. Training and combinations of equipment and other assets acting together are often important. Historically, an increasing division of labor is associated with the growth of total output and trade, the rise of capitalism, and the increasing complexity of industrialized processes.

The Scottish economist Adam Smith, in his work "An Inquiry into the Nature and Causes of the Wealth of Nations" (1776), saw the splitting of tasks as a key to economic progress by providing a cheaper and more efficient means of producing goods. He used the example of a pin factory to illustrate how the efficiency of production was vastly increased because workers were split up and given different roles in the making of a pin.

The division of labor generally increases both producer and individual worker productivity. However, there are potential problems associated with the division of labor. For example, if workers are highly specialized, then the job can become very boring and repetitive, which can lead to low labor morale.

In summary, division of labor is an economic concept that involves dividing a complex production task into several sub-tasks, with each task performed by a separate person or group of persons. It is a key to economic progress by providing a cheaper and more efficient means of producing goods. However, it can also lead to low labor morale if workers are highly specialized.