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.

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labor intensive
Definition
Industry or process where a larger portion of total costs is due to labor as compared with the portion for costs incurred in purchase, maintenance, and depreciation of capital equipment. Agriculture, construction, and coal-mining industries are examples of labor intensive industries. See also capital intensive.

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capital intensive
Definition
Industry requiring large sums of investment in purchase, maintenance, and amortization of capital equipment, such as automotive, petroleum, and steel industry. Capital intensive industriesneed a high volume of production and a high margin of profit (as well as low interest rates) to be able to provide adequatereturns on investment. See also labor intensive.

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Labor Intensive

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What It Is: Labor intensive is used to describe any production process that requires higher labor input than capital input in terms of cost. How It Works/Example: The production of goods and services requires labor and capital in varying amounts, depending on the product. If the labor cost outweighs the capital cost, it indicates that the production process is labor intensive. For example, mining is considered labor intensive because a majority of production costs are related to paying workers. Other industries considered labor intensive include hospitality (hotels and restaurants) and construction. Why It Matters:

Production costs for labor intensive goods and services are variable since businesses can add or subtract workers depending on business conditions. This allows producers to retain some control over production costs. During economic downturns, this can be an advantage over capital intensive producers, which normally have higher fixed costs.

7 Most Popular Related Terms

1. Variable Costs 2. Unemployment Rate 3. Economies of Scope 4. Monetary Policy 5. Labor Productivity 6. Inflation 7. Gross Domestic Product (GDP)
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External Environment: Labour market and unemployment The labour market is where businesses hire workers. A business needs people to help the day to day running of the operation. The amount of labour needed depends on whether the business is a labour intensive or capital intensive. A business that needs more people and less machinery is known a labour-intensive business. Hairdressing, house building, teaching and the fashion industry are examples of labour intensive industries. A capital-intensive industry is where a business relies heavily on machinery and technology in its transformation of inputs into outputs. Good examples include the car industry, steel production and the rail industry. Unemployment is where there are people you are willing and able
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