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Labor intensive refers to an industry, process or activity that uses significant labor relative to other factors of production such as capital and knowledge. The following are illustrative examples.
CapitalLabor intensity is the opposite of capital intensity. Labor intensive processes require many hours of work but relatively little fixed capital such as property, plant and equipment. For example, restaurants are typically labor intensive and airlines are capital intensive because aircraft represent more expensive capital than a restaurant.
RevenueLabor intensity can also be measured in terms of revenue. For example, the revenue produced in an hour of work is a good measure of labor intensity.ProductivityProductivity is the amount of value created in an hour of work. It is often the case that labor intensive industries and processes exhibit low productivity. For example, a farmer using $1 million in equipment would typically produce more in an hour than a farmer using $1000 in equipment.
AutomationAutomation and tools reduce labor intensity. As such, labor intensity tends to decline over time and is lower in developed countries than developing countries.Labor Intensive IndustriesEntire industries can be inherently labor intensive. This can change with time as automation is introduced. For example, agriculture and manufacturing were historically labor intensive but these business can be highly automated where capital is available and labor costs are high.
ServiceProcesses that afford personal attention to customers tend to be labor intensive. For example, a department store with staff levels that allow for customers to never feel they are being ignored.Intentionally replacing automated processes with labor processes is a common way to improve the perceived value of products. For example, a brand of musical instruments that are handcrafted in a nation with high labor costs such as Italy. This may allow the brand to stand out against competitors that rely on machines and low labor prices.
KnowledgeKnowledge intensive processes are often not considered labor intensive, even if they use little capital because they may generate significant revenue in an hour of work. For example, a doctor's office wouldn't be considered labor intensive even if it has little capital equipment because doctors use knowledge to achieve high productivity.
CreativityIt is also possible for creative talent to allow a low capital business to be extremely productive thus avoiding labor intensive work. For example, an artist whose works are highly valued may create significant value in an hour of work with very little capital.|
| Type | | | Definition | An industry, process or activity that uses significant labor relative to other factors of production such as capital and knowledge. | | Related Concepts | |
Labor Economics
This is the complete list of articles we have written about labor economics.
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