Posted in Operations and Supply Chain Terms, Total Reads: 647
Definition: Labour Intensive
An industry or process is supposed to be ‘labour intensive’ if a larger portion of the total costs is due to labour viz. wages and salaries, as compared with the portion for costs of capital equipment. Agriculture, construction, mining and service oriented industries like hotels, restaurants, salons etc. are examples of labour intensive industries.
Production costs for labour intensive industries comprise largely of variable costs, whereas those of capital intensive industries comprises largely of fixed costs. This allows businesses in labour intensive sectors to retain some control and alter total production costs to a very large extent as compared to those in capital intensive industries, where most of the costs are already incurred on machinery or fixed assets.
During economic downturns, this can be an advantage over capital intensive producers. However, this also entails that costs in labour intensive industries can sway largely. Also, labour intensive sectors are most dependent and prone to fluctuations and unforeseen circumstances related to labour-viz. changes in labour laws, strikes, labour unions and so on.