The Paper Workshop should be the first purchase you make when it comes available to you @ L18. You will need paper and lots of it! It is used to make Books. You need 7 books to construct and 3 books to start production in the Library. You also need books to upgrade your Lumber Mill to L3 and for many other buildings that either need books or knowledge. At L24 I had 2 Paper Workshops and added more as time went on. You can also get Paper from Neighbors Paper Workshops, it is random but not terribly rare.
You should always enchant the Paper Workshop to get 2 Paper instead of just 1 and to reduce the production timer.