Labor Intensive

Updated on April 29, 2024
Article byShraddha Sureka
Reviewed byDheeraj Vaidya, CFA, FRM

Labor Intensive Meaning

Labor intensive implies those tasks which require a heavy workforce for accomplishment. The industry is considered labor-intensive in producing goods and services if the manufacturing process relies more on human resources than machinery.

Labor Intensive Meaning

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In this type of business, the work is mostly done manually and a huge cost is incurred to secure human resource to get the work done on time. Businesses often invest a lot in training personnel to improve their productivity. Hotels, healthcare, mining, agriculture are some sectors use lot of manual labor. Economies which are not so developed are usually found to employ a lot of labor.  

Labor Intensive Explained

Labor Intensive means the production activity that requires a large amount of labor to manufacture the product or services and therefore has a higher proportion of labor input than capital input.

Technological advancement has led to lower labor employment and labor intensive technique in certain industries because the marginal product per unit of labor has increased. It has made industries less labor-intensive. However, certain industries can never be completely mechanized due to the nature of the product of such industries.

Most developing economies are labor-intensive as it costs less as compared to the cost of machines. It enables such economies to undertake production, which drives their growth. From a strategic point of view, even developed economies sometimes believe inOutsourcing refers to contracting out specific business processes to a third-party or specialized service provider, i.e., an individual or company.read more outsourcingOutsourcingOutsourcing refers to contracting out specific business processes to a third-party or specialized service provider, i.e., an individual or company.read more to developing economies to benefit from lower production costProduction CostProduction Cost is the total capital amount that a Company spends in producing finished goods or offering specific services. You can calculate it by adding Direct Material cost, Direct Labor Cost, & Manufacturing Overhead Cost. read more. Although there are several complications of human rights violations in case of labor intensive sectors when it comes to outsourcing, as in the case of Nike, that is not always the case.

Industries such as the carpet weaving industry are renowned for the product being unique and the weaving being intricate. The unique selling point fetches them at a much higher price than mass-produced items.

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Examples

Let’s discuss the nature of labor-intensive industries with examples.

Labor Intensive

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#1 – Customized Products

Products within the fashion industry are customized, and every product design is unique. Fashion Designing is, therefore, a labor-intensive industry and requires highly skilled labor. Mass-produced clothing, however, can be producedCapital intensive refers to those industries or companies that require significant upfront capital investments in machinery, plant & equipment to produce goods or services in high volumes and maintain higher levels of profit margins and return on investments. Examples include oil & gas, automobiles, real estate, metals & mining.read more capital intensivelyCapital IntensivelyCapital intensive refers to those industries or companies that require significant upfront capital investments in machinery, plant & equipment to produce goods or services in high volumes and maintain higher levels of profit margins and return on investments. Examples include oil & gas, automobiles, real estate, metals & mining.read more where every item is the same and can, therefore, be produced mechanized.

#2 – Services

Producing professionals such as doctors, accountants, or lawyers are in the form of services and are, therefore, labor-intensive as this skill can’t be mechanized. Currently, many repetitive processes are being automated even in the services industry; however, without human interaction, these services can’t be completely executed.

#3 – Research & Development

Scientific discoveries and innovations cannot completely avoid human involvement. Even with a lot of research being conducted in the field of Artificial Intelligence, human involvement which means they are labor intensive sectors. is still required to understand the present times and the present state of technology and bridge the gap between the two.

#4 – Real Estate Development

Machines act as tools and reduce the amount of labor required; however, they can’t eliminate labor use. Most construction work is labor-intensive, whether in developed or developing economies. The cost of newer technologies such as 3D printing in such an industry is so high that not all economies can afford it. And even with the mechanization of most equipment, such as cranes and forklifts, human involvement is indispensable.

#5 – Agriculture

The labor intensity and labor intensive technique in the agricultural sector is a barometer of the level of development in an economy. Most underdeveloped and developing economies have high labor intensity. As the economies become increasingly mechanized or industrialized, there is a structural shift in the quantum of labor involved in agriculture, reducing the labor intensity in this sector.

Limitations

There are several limitations of the labor-intensive are as follows:

  • Lower Output: Due to the limitations of the speed of a human being as compared to a machine, the level of output is lower than that of the mechanized industry. Therefore the supply lags the demand, and the consumers switch to substitutes.
  • Lower Turnover: As labor-intensive work requires a lot of hard work, the prices set for such products are quite high and therefore are not affordable to all consumers. Consequently, this results in lower turnover. Examples could be designer clothing.
  • Unsatisfied Demand: As the product is unique, reproducing identical goods is not always possible, the consumers need to settle for slightly differentiated products, and that may not always lead to some level of satisfaction and may even lead to a loss of certain demand, where the consumer is not in favor of compromise.
  • Quality Standards: Human error cannot be eliminated; therefore, the quality of produce suffers. Mechanized products are standardized, and consequently, the quality standards are maintained.

Labor Intensive Vs Capital Intensive

Both the above are two separate methods of production and they are differentiated on the basis on how much labor or capital a manufacturing technique requires. Let us point out the differences between them in details as follows:

  • As the name suggests, while the labor intensive technology requires more of labor to carry out the manufacturing process within an organization, the latter requires more of capital investment.
  • In case of the labor intensive jobs, the labor may be skilled, who are experts and knowledgeable in their own field of work or unskilled, which means they do not require any training or prior experience for working. But in case of the latter the capital may be in the form of fund investment or purchase of machinery, plant and equipment, land or building for the purpose of production.
  • The labor intensive jobs usually involves less of spending. It is less expensive compared to the latter which involves putting huge funds for innovative and upgraded methods of production.
  • However, the former may require investment in training and preparing the laborers for the particular type of work that needs to be done. But no training is required for a capital intensive industry where most of the work is done through machinery and equipments.
  • For the former the investment is for short term because hiring and training cost is for limited timeframe, but the latter is a long term investment since the equipments will gin=ve benefit over a long term.
  • The volume of output is usually smaller for the former due to maximum manufacturing is done manually which requires time and effort. The volume of production in case of the latter is huge and in bulk due to manufacturing taking place using machines.
  • The cost is more in case of the labor intensive technology due to less production using more resources. But the overall cost is less for the latter due to more production within less time and resource.

Thus, the above are some important differences between the two types of manufacturing techniques.

This article has been a guide to Labor Intensive and its meaning. We explain its differences with capital intensive, along with examples and limitations. You can learn more about finance from the following articles –