The Division of Labor and the Allocation of Time

Monchi Lio
Department of Political Economy
National Sun Yat-Sen University
Xiaokai Yang
Department of Economics
Monash University

Abstract
This paper develops a model with endogenous specialization and the tradeoff between economies of specialization and transaction costs to analyze the relationship between time allocation and the division of labor. We show that the level of division of labor, the extent of the market, the level of specialization, productivity, the time spent on consumption activities, the consumption diversity, and per capita real income increase concurrently as transaction efficiency is improved. Furthermore, we prove that a stronger desire for leisure could have a positive effect on productivity by promoting the development of division of labor if people have strong preference for diversified consumption.

Keywords: The division of labor, Time allocation, Transaction cost.
JEL Classification: D10, J20.

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