Cost Of Labor

AAA

DEFINITION of 'Cost Of Labor'

The sum of all wages paid to employees, as well as the cost of employee benefits and payroll taxes paid by an employer. The cost of labor is broken into direct and indirect costs. Direct costs include wages for the employees physically making a product, like workers on an assembly line. Indirect costs are associated with support labor, such as employees that maintain factory equipment but don't operate the machines themselves.

INVESTOPEDIA EXPLAINS 'Cost Of Labor'

When manufacturers set the price of a good they take the cost of labor into account. This is because they need to charge more than that good's total cost of production. If demand for a good drops or the price consumers are willing to pay for the good falls, companies must adjust their the cost of labor to remain profitable. They can reduce the number of employees, cut back on production, require higher levels of productivity, reduce indirect labor costs or reduce other factors in the cost of production.

RELATED TERMS
  1. Subjective Theory Of Value

    The idea that an object's value is not inherent, and is instead ...
  2. Labor Theory Of Value

    An economic theory that stipulates that the value of a good or ...
  3. Labor Productivity

    A measurement of economic growth of a country. Labor productivity ...
  4. Demand For Labor

    A concept that describes the amount of demand for labor that ...
  5. Direct Cost

    A price that can be completely attributed to the production of ...
  6. Cost Of Goods Sold - COGS

    The direct costs attributable to the production of the goods ...
RELATED FAQS
  1. What multinational corporations operate in the former Soviet Union?

    Multinational companies from a variety of sectors operate in the former Soviet Union. They include food and beverage companies ... Read Full Answer >>
  2. What are the risks associated with investing in the railroads sector?

    Investing in any security in hopes of it appreciating in value or paying interest or dividends entails risk. Securities offered ... Read Full Answer >>
Related Articles
  1. Economics

    The Economics Of Labor Mobility

    Loosening labor restrictions has both good and bad effects for a country and its workers.
  2. Economics

    Understanding Supply-Side Economics

    Does the amount of goods and services produced set the pace for economic growth? Here are the arguments.
  3. Economics

    The History Of Economic Thought

    Economics is a vital part of every day life. Discover the major players who shaped its development.
  4. Economics

    A Practical Look At Microeconomics

    Learn how individual decision-making turns the gears of our economy.
  5. Options & Futures

    Explaining The World Through Macroeconomic Analysis

    From unemployment and inflation to government policy, learn what macroeconomics measures and how it affects everyone.
  6. Personal Finance

    What Drives Consumer Demand for Tesla?

    Tesla did not invent the electric vehicle market, but it has brought to it elements of luxury and elite status. But what really drives demand for Teslas?
  7. Economics

    Economics Basics

    Learn economics principles such as the relationship of supply and demand, elasticity, utility, and more!
  8. Investing

    Opportunity Cost

    Every action has a cost, even the ones you don't pursue. Find out how this is calculated.
  9. Fundamental Analysis

    How Influential Economists Changed Our History

    Find out how these five groundbreaking thinkers laid our financial foundations.
  10. Economics

    How Fannie Mae And Freddie Mac Were Saved

    These mortgage giants had to be put under government conservatorship, driving home the gravity of the subprime crisis.

You May Also Like

Hot Definitions
  1. Fixed-Charge Coverage Ratio

    A ratio that indicates a firm's ability to satisfy fixed financing expenses, such as interest and leases. It is calculated ...
  2. Efficiency Ratio

    Ratios that are typically used to analyze how well a company uses its assets and liabilities internally. Efficiency Ratios ...
  3. Fixed Cost

    A cost that does not change with an increase or decrease in the amount of goods or services produced. Fixed costs are expenses ...
  4. Subsidy

    A benefit given by the government to groups or individuals usually in the form of a cash payment or tax reduction. The subsidy ...
  5. Sunk Cost

    A cost that has already been incurred and thus cannot be recovered. A sunk cost differs from other, future costs that a business ...
  6. Technical Skills

    1. The knowledge and abilities needed to accomplish mathematical, engineering, scientific or computer-related duties, as ...
Trading Center