Labour-intensive or Capital-intensive production?

It is important to distinguish between capital-intensive and labour-intensive methods of production.

Capital-intensive
Capital refers to the equipment, machinery, vehicles and so on that a business uses to make its product or service. Capital-intensive processes are those that require a relatively high level of capital investment compared to the labour cost. These processes are more likely to be highly automated and to be used to produce on a large scale. Capital-intensive production is more likely to be associated with flow production (see below) but any kind of production might require expensive equipment. Capital is a long-term investment for most businesses, and the costs of financing, maintaining and depreciating this equipment represents a substantial overhead. In order to maximise efficiency, firms want their capital investment to be fully utilised (see notes on capacity utilisation). In a capital-intensive process, it can be costly and time-consuming to increase or decrease the scale of production.

Labour-intensive
Labour refers to the people required to carry out a process in a business. Labour-intensive processes are those that require a relatively high level of labour compared to capital investment. These processes are more likely to be used to produce individual or personalised products, or to produce on a small scale The costs of labour are: wages and other benefits, recruitment, training and so on. Some flexibility in capacity may be available by use of overtime and temporary staff, or by laying-off workers. Long-term growth depends on being able to recruit sufficient suitable staff. Labour intensive processes are more likely to be seen in Job production and in smaller-scale enterprises.

Some Arguments In Favor Of Capital Intensive Methods 1. It argued that labour-intensive methods do not readily adopt to change. Capitalintensive method can however, easily be adjusted to suit modern trends in production due to their flexibility.

2. The farmer, for instance using capital-intensive methods of production can produce far more than the one using labour-intensive means. Capital-intensive methods are therefore clearly associated with high levels of output. For this reason poor countries must opt for this method if they increase their pace of development.

3. It is believed that developed countries such as the United States, Britain, Japan, France, Germany and recently, China have attained their levels of development by adopting capital-intensive methods of production. Therefore developing economies must also invest heavily in this technique of production in order to develop. This is a historical reason rather than an economic one

This means it uses a high proportion of machinery in relation to workers, as is the case on an assembly line. The advantage of this is that a high number of products can roll off assembly lines at very low cost. This is because production can continue at night and over weekends and also firms can benefit from economies of scale, which should lower the cost per unit of production.