Labor intensive

From Economypedia.com

Labor intensive production methods involve substantial labor input and are commonly used in labor abundant economies. In labor intensive production processes, cost of labor is comparatively lower than cost of capital. Agriculture, mining, fishing, hotels, and restaurants are labor intensive activities.

In less developed economies labor abundance is an inherent characteristic. As such, labor intensive industries and labor intensive manufacturing processes are common. In very general terms, labor intensive industries require greater quantity of physical or human effort in their manufacturing process. Leather processing, garment manufacturing, agriculture based industries like tea processing, and spices manufacturing are typical examples of labor intensive secondary economic activities. Banking, hospitality, and ITES (information technology enabled services) are labor intensive economic activities in tertiary or services sector. ^[1] ^[2] ^[3]

1 Advantages of labor intensive processes
2 Disadvantages of labor intensive techniques
3 See also
4 References
5 External links
6 Further readings

[edit] Advantages of labor intensive processes

For any manufacturing process, cost of capital is assumed to remain somewhat constant and labor cost as a most predominant variable. Production cost is more easily controlled in labor intensive processes since labor size can be varied depending on demand fluctuations of market.

For less developed economies, where labor is available in abundance it is beneficial to use labor intensive methods of production not only to use available resources but also to keep production costs down. Availability of cheap labor is a common phenomenon in labor surplus economies. Regulation of employed labor is most convenient way of controlling production cost in short run. ^[4]^[5]

[edit] Disadvantages of labor intensive techniques

Labor intensive techniques of production are usually used in economies having sufficient supply of cheap labor. In many of developing economies, labor is organized and unionized. Despite fluctuations in market demand, labor force is subject to a minimum wage, which may increase cost of production when output is reduced. Also, incidence of diminishing marginal utility of labor is a common feature in labor surplus economies. Introducing new technologies or means of production is often confronted by employed labor force. They see it as a threat to their existence. ^[6]