Labor Intensive

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DEFINITION

A process or industry that requires a large amount of labor to produce its goods or services. The degree of labor intensity is typically measured in proportion to the amount of capital required to produce the goods/services; the higher the proportion of labor costs required, the more labor intensive the business.




INVESTOPEDIA EXPLAINS

Labor intensive industries include restaurants, hotels, agriculture and mining. Advances in technology and worker productivity have moved some industries away from labor-intensive status, but many still remain.

Labor costs are considered variable, while capital costs are considered fixed. This gives labor-intensive industries an advantage in controlling expenses during market downturns by controlling the size of the employee base. Disadvantages include limited economies of scale (you can't pay workers less by hiring more of them), and susceptibility to wage forces within the labor market.



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