Cost Of Labor

What is the 'Cost Of Labor'

The cost of labor is 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.

BREAKING DOWN '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. Direct Cost

    A price that can be completely attributed to the production of ...
  2. Production Cost

    A cost incurred by a business when manufacturing a good or producing ...
  3. Demand For Labor

    A concept that describes the amount of demand for labor that ...
  4. Cost Accounting

    A type of accounting process that aims to capture a company's ...
  5. Labor Market

    The labor market refers to the supply and demand for labor, in ...
  6. Labor Productivity

    A measurement of economic growth of a country. Labor productivity ...
Related Articles
  1. Markets

    The Economics Of Labor Mobility

    Loosening labor restrictions has both good and bad effects for a country and its workers.
  2. Entrepreneurship & Small Business

    What Are The Different Types Of Costs In Cost Accounting?

    Cost accounting measures several different types of costs associated with a company’s production processes.
  3. Markets

    Minimum Wage Increase: Will Technology Help Margins for U.S. Companies? (MCD, MSFT)

    Discover why the $15 per hour minimum wage movement may unintentionally be sowing the seeds for a new crop of jobs-stealing robots.
  4. Markets

    Why Wages Stick When The Economy Shifts

    Even economists can't agree on the impact (or even existence) of wage stickiness. So, how does it affect you?
  5. Personal Finance

    4 Reasons Employee Wellness Matters

    Employees want more than a paycheck. They want rich benefits that include a health and wellness component. Companies that offer it stand to save.
  6. Markets

    Understanding Marginal Cost of Production

    Marginal cost of production is an economics term that refers to the change in production costs resulting from producing one more unit.
  7. Investing

    What are Direct Costs?

    Direct costs for finished goods refer to the items and services directly used in production. Other costs such as rent and insurance for the production site are indirect costs. These costs may ...
  8. Markets

    Why $15 Minimum Wage Might Not Be Good News for Anyone (MCD, DPZ)

    Discover why the minimum wage isn't the panacea it is made out to be, and how artificial wage increases strain businesses and consumers.
  9. Markets

    What Does Labor Intensive Mean?

    A labor-intensive industry requires large amounts of human labor to make its goods or services.
  10. Markets

    Will You See Higher Wages In 2015?

    It's been a few years into the economic recovery from the Great Recession, and the employment picture has been rocky.
RELATED FAQS
  1. How can I tell if a cost is a direct cost?

    Find out how to tell if a cost is a direct cost, why that's important and why direct costs don't tell the whole story about ... Read Answer >>
  2. What are the different types of costs in cost accounting?

    Learn about the different types of costs associated with cost accounting, such as direct, indirect, fixed, variable and operating ... Read Answer >>
  3. What are the differences between period costs and product costs?

    Find out why GAAP separates all company expenses into either period or production costs and how this impacts the way expenses ... Read Answer >>
  4. How are fixed costs treated in cost accounting?

    Learn how fixed costs and variable costs are used in cost accounting to help a company's management in budgeting and controlling ... Read Answer >>
  5. What is prime cost in managerial accounting?

    Learn about prime costs in managerial accounting such as direct material cost, labor and wages cost, and other direct costs ... Read Answer >>
  6. What is the difference between prime cost and conversion cost?

    Understand the difference between prime costs and conversion costs, and learn how each type is used in analyzing business ... Read Answer >>
Hot Definitions
  1. AAA

    The highest possible rating assigned to the bonds of an issuer by credit rating agencies. An issuer that is rated AAA has ...
  2. GBP

    The abbreviation for the British pound sterling, the official currency of the United Kingdom, the British Overseas Territories ...
  3. Diversification

    A risk management technique that mixes a wide variety of investments within a portfolio. The rationale behind this technique ...
  4. European Union - EU

    A group of European countries that participates in the world economy as one economic unit and operates under one official ...
  5. Sell-Off

    The rapid selling of securities, such as stocks, bonds and commodities. The increase in supply leads to a decline in the ...
  6. Brazil, Russia, India And China - BRIC

    An acronym for the economies of Brazil, Russia, India and China combined. It has been speculated that by 2050 these four ...
Trading Center