An extended version of the discussion of the pin industry, with more references. My DoL colleague Dr. W. Mixon suggested more background was needed.

And we are always happy to please, at DoL.

On Pins and Needles: Division of Labor is Limited by the Extent of the Market

…As it is the power of exchanging that gives occasion to the division of labour, so the extent of this division must always be limited by the extent of that power, or, in other words, by the extent of the market. When the market is very small, no person can have any encouragement to dedicate himself entirely to one employment, for want of the power to exchange all that surplus part of the produce of his own labour, which is over and above his own consumption, for such parts of the produce of other men's labour as he has occasion for. (Adam Smith on the origins of division of labor: Bk I, Chapter 3; emphasis added; http://www.econlib.org/library/Smith/smWN.html )

That the division of labor is the source of wealth and prosperity in capitalist nations is now widely accepted. That the division of labor in each product is limited by the extent of the market in that good is rarely mentioned This essay examines division of labor, and the extent of the market, in one mundane commodity: straight pins.

The choice is not original. As Adam Smith put it:
To take an example, therefore, from a very trifling manufacture; but one in which the division of labour has been very often taken notice of, the trade of the pin-maker; a workman not educated to this business (which the division of labour has rendered a distinct trade), nor acquainted with the use of the machinery employed in it (to the invention of which the same division of labour has probably given occasion), could scarce, perhaps, with his utmost industry, make one pin in a day, and certainly could not make twenty. But in the way in which this business is now carried on, not only the whole work is a peculiar trade, but it is divided into a number of branches, of which the greater part are likewise peculiar trades. One man draws out the wire, another straights it, a third cuts it, a fourth points it, a fifth grinds it at the top for receiving the head; to make the head requires two or three distinct operations; to put it on, is a peculiar business, to whiten the pins is another; it is even a trade by itself to put them into the paper…I have seen a small manufactory of this kind where ten men only were employed…Those ten persons…could make among them upwards of forty-eight thousand pins in a day. (Adam Smith on the origins of division of labor: Bk I, Chapter 1; http://www.econlib.org/library/Smith/smWN.html )

Today, economists would call the effect of division of labor “nonlinear”: a doubling of labor effort more than doubles output (see Edwards and Starr, 1987, for some further details). Smith’s claim rested partly on eliminating time wasted switching from one task or tool to another, as well as improved dexterity and tool design. This, to the modern mind, is easy to grasp Increases in the quantity and specialization of capital on production lines increase human productivity, increasing wages, reducing costs, and expanding output.
But what is the “extent of the market”? For that matter, what is a “market”? We might use the word in a sentence like this, “I am going to the market to get eggs; do you need anything?” That is not what Smith meant, however. The market Smith was talking about was the number of potential (and, in an important sense, actual!) customers for the product in question. This requires an elaborate infrastructure of exchange, including transportation, a fast-clearing financial system, and the absence of physical or political barriers to exchange.
This constraint is static, in Smith’s example: the number of steps in pin production in one nation at one time depends on the extent of the market, which in turn depends on whether ships use sail or steam, whether railroads exist, and on the availability of export markets.
And you might not have expected that. The number of steps in the process is only partly determined by pin-making technology. The more important factor is the number of pins the manufacturer thinks he can sell. Dividing labor into discrete steps increases production more than the proportionate increase in labor employed. Producers keep dividing labor, and producing many more pins, until the point where they cannot sell additional units for more than their marginal cost.
But the dynamic impact of Smith’s observation is what is affecting us in today’s globalizing market. It is not true that division of labor is limited by the current extent of the market, at least not for long. The increased output and reduced costs resulting from greater division of labor smash through political barriers. And human ingenuity reduces the costs of physical barriers such as mountains, rivers, or even distance. For most products today, including pins, the extent of the market is Earth.

The Pin Factory and Price Associations in England
Fifty years before Smith wrote Wealth of Nations, pins in England were made almost exclusively in Bristol, Gloucester, and London, the centers of demand. There were well over 100 British “manufactories.” By the 1760s, pin-making became a decentralized cottage industry, in part because sewing and other activities using pins had also become more decentralized. And this is the period where Smith formed his impression: he saw pins being made by 3-6 men, in a small shop, each of whom performed several tasks at different points in the production process.
The industrial revolution, and the advent of steam locomotives and ships, changed the industry dramatically. As Pratten (1980) notes:
In 1820 there were 11 pin factories in Gloucester employing 1,500 people, out of a total population of 7,500, but by 1870 there was no longer a pin industry in Gloucester…By 1939 the number of manufacturers in the United Kingdom had shrunk to about twelve, and now [1978] there are only two, the Newey Group, with a pin factory in Birmingham, and Whitecraft Scovill, which has a factory in Gloucestershire. The concentration of the trade in the U.K. has evolved through mergers, take-overs, and firms leaving the trade. (Pratten, 1980; p. 93)

The actual process of consolidation, and the attempts of the industry to “rationalize” production and pricing policy through the 1840s, are fascinating, but too lengthy to take up here. I would point the interested reader to the work of S. R. H. Jones (Jones, 1973; 1976; Dutton and Jones, 1983).
An abbreviated version, which I hope does only minor violence to the facts, goes as follows: In 1800, the main pin input was brass wire, which made up nearly ¾ of the total cost of the final product. Brass wire was available only from the (cartelized) Association of Brass Wire Manufacturers. The production process was the same everywhere, with only small (and apparently insignificant) local variations. Costs of entry (acquiring a site and tools, but ignoring the costs of hiring and training labor, and buying wire stock) were a relatively low ₤500. There may have been differences in quality, though Jones points out that some of these were “imaginary,” the result of attempts at advertising-based market segmentation by brand name and image differentiation (Jones, 1973; p. 240; Jones, 1976, p. 51).
And this problem, the essential homogeneity of the product and the cost savings that accrued to division of labor and economies of scale in mechanization, ultimately broke each of five separate attempts at “price association,” or cartelization. Market segmentation, because of transportation costs and lack of real quality differences, simply could not hold up against the pressures to reduce cost and therefore win more market share through lower prices. The “extent of the market” simply could not be limited, and producers used increased division of labor to reduce costs and undercut the prices of competitors. British pin makers sold to the whole of the U.K., and then in fairly short order to export markets, in spite of the increasingly hysterical attempts of the price associations to depict entrepreneurship as irrational or against the public interest.

The Pin Industry Today
Today the largest pin producer in the world is Prym-Dritz Corporation, headquartered in Spartanburg, South Carolina. Prym had been a German company, started in William Prym’s brass mill in Stolberg, Germany in 1620. Hans August Prym began to move the company to the U.S. in the 1920s. Prym has purchased or otherwise obtained control of the large American maker Collins, as well as the British maker Newey Group, mentioned above as one of two firms left in Britain in 1980. While Prym-Dritz is still headquarted in Spartanburg, their largest production facilities are in China and Malaysia, with a significant presence also in Hong Kong and Mexico. Prym-Dritz is definitely simply an American company as a legal matter: the bulk of both their production and sales occur outside U.S. borders.
Within the U.S., the largest four pin-making firms produce half of the total output; the twenty largest firms produce three-quarters of the output. Thus, the industry is concentrated, but not overwhelmingly so. Quite a number of firms produce pins at least as a sideline, and the industry is extremely competitive. I did some price comparisons on-line, thinking it would be easy to get data. But many firms require registration, or even a phone call, to obtain their real prices on bulk orders. Clearly, the goal is to negotiate a price, or at least hide prices from the cut-throat competition.
American firms have no “price associations” to try to prop prices up, or to call entrepreneurs “irrational.” But you can see why they might want some. I was able to find some publicly quoted prices, and it is clear that you can buy (in bulk) at rates of ten pins per penny, or 1,000 pins for $1. That’s not free, but it’s close. There were about 5,300 employees in pin (and needle, button, or fastener, NAIC 339993) factories in the U.S. in 2002, down from well over 8,000 in 1997. It’s hard to compare historically, because the definition of the industry changed in the statistics, but clearly the pin industry in the U.S. employed more than 50,000 in the late 1900’s. [SORRY FOR TYPO! SHOULD SAY "late 1800's"]
It would be a mistake to think that these jobs were “lost,” however, or that the jobs were somehow exported. Smith’s insight is still in force, more powerfully than ever. As the extent of the market increases, increased productivity reduces the quantity of labor demanded (though wages go up for those jobs that remain). And we can see this effect, though changes in productivity are hard to measure because tasks have changed so much.
Pratten (1980) quotes Smith’s estimate that each laborer produced something just under 5,000 pins per day. He compares this to the two U.K. firms he analyzed, which produced about 800,000 pins per worker per day in the late 1970s. Some of this productivity increase is due, of course, to a secular improvement in technology and automation. But a considerable portion is due, just as Smith described nearly 250 years ago, to increased division of labor fostered by expanding markets.

Further Reading
Dutton, H. I., and S. R. H. Jones. “Invention and Innovation in the British Pin Industry, 1790-1850.” British Business History. 57 (1983): 175-193.

Edwards, Brian K., and Ross M. Starr. “A Note on Indivisibilities, Specialization, and Economies of Scale. American Economic Review. 77 (1987): 192-194.

Jones, S. R. H. “Price Associations and Competition in the British Pin Industry, 1814-40.” Economic History Review. 26 (1973): 237-253.

Jones, S. R. H. “Hall, English, and Co., 1813-41: A Study of Entrepreneurial Response in the Gloucester Pin Industry.” Business History. 18 (1976): 35-65.

Levy, David. “Testing Stigler’s Interpretation of ‘The Division of Labor is Limited by the Extent of the Market.” Journal of Industrial Economics. 32 (1984): 377-389.

McNulty, Mary. “How Straight Pins are Made.” How Products are Made. ENotes. http://science.enotes.com/how-products-encyclopedia/straight-pin

Pratten, Clifford J. “The Manufacture of Pins.” Journal of Economic Literature. 18 (1980): 93-96.

Stigler, George J. “The Division of Labor is Limited by the Extent of the Market.” Journal of Political Economy, 59(1951): 185-193.

U.S. Census Bureau. “Fastener, Button, and Pin Manufacturing: 2002.” U.S. Department of Commerce: Economics and Statistics Administration, Manufacturing and Construction Division. 2002.

U.S. Census Bureau. “Industry Statistics Sampler: NAICS 339993—Fastener, button, needle, and pin manufacturing.” U.S. Department of Commerce: Economics and Statistics Administration, Manufacturing and Construction Division. 2002.