Labour Intensive vs Capital Intensive
Capital intensive and labor intensive refer to types of production methods used in the production of goods and services. Whether an industry or firm is capital or labor intensive depends on the ratio of capital vs. labor required in the production of goods and services. While capital intensive is more expensive and requires a higher capital investment, labor intensive production requires more labor input and requires higher investment in training and education of employees. The article offers a clear overview of each type of production and shows the major differences between capital intensive and labor intensive production.
What is Capital Intensive?
Capital intensive refers to the production that requires higher capital investment such as financial resources, sophisticated machinery, more automated machines, the latest equipment, etc. Capital intensive industries pose higher barriers to entry as they require more investment in equipment and machinery to produce goods and services. An industry, firm, or business is considered to be capital intensive taking into consideration the amount of capital that is required in comparison to the amount of labor required. Good examples of capital intensive industries include the oil refining industry, telecommunications industry, airline industry, and public transport authorities that maintain the roads, railways, trains, trams, etc.
What is Labour Intensive?
Labor intensive refers to the production that requires a higher labor input to carry out production activities in comparison to the amount of capital required. Examples of labor intensive industries include agriculture, restaurants, hotel industry, mining and other industries that require much manpower to produce goods and services. Labor intensive industries depend mostly on the workers and employees of their firms, and require higher investment and time to train and coach workers to produce goods and services according to specified standards. Labor intensive production also requires more time to complete one unit of production as production, generally, occurs on a small scale.
Capital Intensive vs Labour Intensive
Capital intensive production requires more machinery, equipment and sophisticated technological production systems in the production process. Capital intensive production requires a higher level of investment and larger amount of funds and financial resources. A capital intensive production process is mostly automated and able to generate a large output of goods and services. Since capital intensive production relies largely on machinery and equipment, such industries require long term investment, with a high cost involved in maintaining and depreciating equipment. In such a capital intensive production process, it could be very costly to increase output levels as this would require higher investment in such machinery and equipment.
Labor intensive is where most of the production is carried by workers or employees. It means that the levels of output would be at a much smaller scale than a labor intensive industry. The costs involved in a labor intensive production unit would be the costs of training and educating employees. However in comparison to capital intensive, in labor intensive production, increasing the volume of output is easier as it does not require a large investment. Instead, hiring more workers, asking workers to work extra hours and hiring temporary staff can increase production in the short term.
What is the difference between Capital Intensive and Labour Intensive?
• Capital intensive and labor intensive refer to types of production methods followed in the production of goods and services.
• Capital intensive production requires more equipment and machinery to produce goods; therefore, require a larger financial investment.
• Labor intensive refers to production that requires a higher labor input to carry out production activities in comparison to the amount of capital required.