Labor intensity is the relative proportion of

labor Labour or labor may refer to: * Childbirth, the delivery of a baby * Labour (human activity), or work ** Manual labour, physical work ** Wage labour, a socioeconomic relationship between a worker and an employer ** Organized labour and the la ...

(compared to

capital Capital may refer to: Common uses * Capital city, a municipality of primary status ** List of national capital cities * Capital letter, an upper-case letter Economics and social sciences * Capital (economics), the durable produced goods used f ...

) used in any given process. Its inverse is

capital intensity Capital intensity is the amount of fixed or real capital present in relation to other factors of production, especially labor. At the level of either a production process or the aggregate economy, it may be estimated by the capital to labor ratio, ...

. Labor intensity has been declining since the onset of the

Industrial Revolution The Industrial Revolution was the transition to new manufacturing processes in Great Britain, continental Europe, and the United States, that occurred during the period from around 1760 to about 1820–1840. This transition included going f ...

in the late 1700s, while its inverse, capital intensity, has increased nearly exponentially since the latter half of the 20th century.

Labor-intensive industries

A labor-intensive industry requires large amounts of

manual labor Manual labour (in Commonwealth English, manual labor in American English) or manual work is physical work done by humans, in contrast to labour by machines and working animals. It is most literally work done with the hands (the word ''manual'' ...

to produce its goods or services. In such industries,

labor cost Direct labor cost is a part of wage-bill or payroll that can be specifically and consistently assigned to or associated with the manufacture of a product, a particular work order, or provision of a service. Also, we can say it is the cost of the wor ...

s are more of a concern than

capital costs Capital costs are fixed, one-time expenses incurred on the purchase of land, buildings, construction, and equipment used in the production of goods or in the rendering of services. In other words, it is the total cost needed to bring a project to a ...

. Labor intensity is measured by its proportion to the amount of capital to produce goods or services. The higher the labor cost, the more labor intense is the business. Labor cost can vary because businesses can add or subtract workers based on business needs. When it comes to controlling

expense An expense is an item requiring an outflow of money, or any form of fortune in general, to another person or group as payment for an item, service, or other category of costs. For a tenant, rent is an expense. For students or parents, tuition is a ...

s, labor intensive businesses have an advantage over those that are capital intensive and require a large investment in capital equipment, such as the

automobile industry The automotive industry comprises a wide range of companies and organizations involved in the design, development, manufacturing, marketing, and selling of motor vehicles. It is one of the world's largest industries by revenue (from 16 % such ...

. When it comes to include

economy of scale In microeconomics, economies of scale are the cost advantages that enterprises obtain due to their scale of operation, and are typically measured by the amount of output produced per unit of time. A decrease in cost per unit of output enables a ...

, labor intensive industries deal with many challenges: they cannot pay individual workers less by hiring more workers. In case of high level of

inflation In economics, inflation is an increase in the general price level of goods and services in an economy. When the general price level rises, each unit of currency buys fewer goods and services; consequently, inflation corresponds to a reductio ...

in the

economy An economy is an area of the production, distribution and trade, as well as consumption of goods and services. In general, it is defined as a social domain that emphasize the practices, discourses, and material expressions associated with the ...

, the labor-intensive industry can suffer to some extent. In times of high inflation, laborers are more likely to reveal their unwillingness to work at the same level of wage, because inflation lowers the value of their earnings. Before the industrial revolution, the major part of the workforce was employed in agriculture. Producing food was very labor-intensive. Advances in technology and worker productivity have moved some industries away from labor-intensive status, but many remain, such as mining and agriculture. Examples of labor-intensive sectors include: *

Nursing Nursing is a profession within the health care sector focused on the care of individuals, families, and communities so they may attain, maintain, or recover optimal health and quality of life. Nurses may be differentiated from other health ...

Textiles Textile is an umbrella term that includes various fiber-based materials, including fibers, yarns, filaments, threads, different fabric types, etc. At first, the word "textiles" only referred to woven fabrics. However, weaving is not the ...

Agriculture Agriculture or farming is the practice of cultivating plants and livestock. Agriculture was the key development in the rise of sedentary human civilization, whereby farming of domesticated species created food surpluses that enabled people to ...

—

fruit picking Fruit picking or fruit harvesting is a seasonal activity (paid or recreational) that occurs during harvest time in areas with fruit growing wild or being farmed in orchards. Some farms market "You-Pick" for orchards, such as the tradition of Apple ...

is often done by hand as it is difficult for machines to pick, for example, strawberries or apples from trees. *

Teaching Teaching is the practice implemented by a ''teacher'' aimed at transmitting skills (knowledge, know-how, and interpersonal skills) to a learner, a student, or any other audience in the context of an educational institution. Teaching is closely re ...

Mining Mining is the extraction of valuable minerals or other geological materials from the Earth, usually from an ore body, lode, vein, seam, reef, or placer deposit. The exploitation of these deposits for raw material is based on the economic via ...

Niche product A niche market is the subset of the market on which a specific product is focused. The market niche defines the product features aimed at satisfying specific market needs, as well as the price range, production quality and the demographics that it ...

s — If a company specializes in a niche market, there will be less scope for

economies of scale In microeconomics, economies of scale are the cost advantages that enterprises obtain due to their scale of operation, and are typically measured by the amount of output produced per unit of time. A decrease in cost per unit of output enables ...

and lower

fixed cost In accounting and economics, 'fixed costs', also known as indirect costs or overhead costs, are business expenses that are not dependent on the level of goods or services produced by the business. They tend to be recurring, such as interest or r ...

s. In this case, we tend to see higher labor-intensive production. Pottery is an example of niche product.

The role in the economy

For underdeveloped and developing economies, a labor intensive industry structure can be a better option than a capital intensive one for quick

economic development In the economics study of the public sector, economic and social development is the process by which the economic well-being and quality of life of a nation, region, local community, or an individual are improved according to targeted goals and o ...

. For countries which are not wealthy and generate low levels of income, labor intensive industry can bring economic growth and prosperity. In most cases, these low income countries suffer from scarcity of capital but have an abundant labor force, such as some Africa countries. The use of such an abundant labor force may lead to industrial growth.

China China, officially the People's Republic of China (PRC), is a country in East Asia. It is the world's most populous country, with a population exceeding 1.4 billion, slightly ahead of India. China spans the equivalent of five time zones and ...

has a large workforce and

manufacturing Manufacturing is the creation or production of goods with the help of equipment, labor, machines, tools, and chemical or biological processing or formulation. It is the essence of secondary sector of the economy. The term may refer to a r ...

industries contribute about 35 per cent to country's

gross domestic product Gross domestic product (GDP) is a money, monetary Measurement in economics, measure of the market value of all the final goods and services produced and sold (not resold) in a specific time period by countries. Due to its complex and subjec ...

. The country has also become one of the world's leading manufacturing bases and leading suppliers of products such as household

electric appliances A home appliance, also referred to as a domestic appliance, an electric appliance or a household appliance, is a machine which assists in household functions such as cooking, cleaning and food preservation. Appliances are divided into three ty ...

garment Clothing (also known as clothes, apparel, and attire) are items worn on the human body, body. Typically, clothing is made of fabrics or textiles, but over time it has included garments made from animal skin and other thin sheets of materials ...

toy A toy or plaything is an object that is used primarily to provide entertainment. Simple examples include toy blocks, board games, and dolls. Toys are often designed for use by children, although many are designed specifically for adults and pet ...

shoes A shoe is an item of footwear intended to protect and comfort the human foot. They are often worn with a sock. Shoes are also used as an item of decoration and fashion. The design of shoes has varied enormously through time and from culture t ...

and light industrial products. Supply of perfectly skilled labor to any industry can boost the industry growth rate. In this way, underdeveloped countries can improve their

industrial economy In economics, industrial organization is a field that builds on the theory of the firm by examining the structure of (and, therefore, the boundaries between) firms and markets. Industrial organization adds real-world complications to the perf ...

without heavy

capital investment Investment is the dedication of money to purchase of an asset to attain an increase in value over a period of time. Investment requires a sacrifice of some present asset, such as time, money, or effort. In finance, the purpose of investing is ...

. Moreover,

export An export in international trade is a good produced in one country that is sold into another country or a service provided in one country for a national or resident of another country. The seller of such goods or the service provider is an ...

ation of the products manufactured by labor intensive industries can strengthen the export base of any developing country. These exports help the economies in earning foreign exchange, which can be used for importing essential goods and services.

Measurement

There are multiple ways to measure labor intensity: * Labor-capital ratio :the relationship between employment and capital stock. This ratio indicates the relative use of factors in an activity and the extent to which it is labor-intensive compared to capital-intensive. * The ratio between employment and value added, which indicates the labor intensity of production. This measure indicates the extent to which an activity absorbs labor for each unit of value added. These two measures are different ways of measuring labor intensity, Neither is superior in itself, the choice of measure depends on the specific issue of interest. However there is a limitation of this two measures: they only measure direct labor intensity and they exclude the extent to which sectors are linked to another sector of the economy. For instance, a given sector may itself not be particularly labor-intensive, but it might utilize (as inputs) the output of other sectors that are highly labor-intensive. A solution could be to consider employment multipliers by sector. Employment multipliers essentially indicate what increase (decrease) in economy-wide jobs could be associated with a given increase (decrease) in final output of a sector.

References

{{Authority control Intensity