The Generalist Trap - A Theoretical Exploration of Specialisation in Labour Markets

University essay from Handelshögskolan i Stockholm/Institutionen för nationalekonomi

Abstract: It has previously been acknowledged that the increase in productivity resulting from time allocated to a task is a key driver of specialisation in economies. This paper presents three models exploring the topic of specialisation by assuming that the allocation of an agent's time influences production both directly and indirectly, the latter through an experience-based learning effect. The first model presented focuses on a single agent, free to allocate their time as they wish on a continuous scale. In this model, specialising leads to productivity gains but increases exposure to transaction cost. According to the model, lifetime utility can only be maximised by either pure generalists or pure specialists, of which the preferable strategy is determined by transaction costs. When the effect of a transition from generalist to specialist is explored, the model demonstrates that the decision entails a short-term loss, but also a long-term potential gain in utility. The subsequent models incorporate game theory, allowing focus on the entire economy. Both these models demonstrate that even in situations where everyone benefits from a specialised economy, an individual may benefit from remaining a generalist. We call this phenomenon the generalist trap, defined as a situation where specialisation on a societal level is the desired outcome, but barriers of various forms prevent this from being achieved.

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