A labor-intensive industry would be best located

Labor intensity is the relative proportion of labor (compared to capital) used in any given process. Its inverse is capital intensity.

Labor intensity has been declining since the onset of the Industrial Revolution in the late 1700s, while its inverse, capital intensity, has increased nearly exponentially since the latter half of the 20th century.

Labor-intensive industries

A labor-intensive industry requires large amounts of manual labor to produce its goods or services. In such industries, labor costs are more of a concern than capital costs. Labor intensity is measured by its proportion to the amount of capital to produce goods or services. The higher the labor cost, the more labor intense is the business. Labor cost can vary because businesses can add or subtract workers based on business needs. When it comes to controlling expenses, labor intensive businesses have an advantage over those that are capital intensive and require a large investment in capital equipment, such as the automobile industry. When it comes to include economy of scale, labor intensive industries deal with many challenges: they cannot pay individual workers less by hiring more workers.[1]

In case of high level of inflation in the economy, the labor-intensive industry can suffer to some extent. In times of high inflation, laborers are more likely to reveal their unwillingness to work at the same level of wage, because inflation lowers the value of their earnings.[2]

Before the industrial revolution, the major part of the workforce was employed in agriculture. Producing food was very labor-intensive. Advances in technology and worker productivity have moved some industries away from labor-intensive status, but many remain, such as mining and agriculture.

Examples of labor-intensive sectors include:

• Nursing
• Textiles
• Agriculture — fruit picking is often done by hand as it is difficult for machines to pick, for example, strawberries or apples from trees.
• Teaching
• Mining
• Niche products — If a company specializes in a niche market, there will be less scope for economies of scale and lower fixed costs. In this case, we tend to see higher labor-intensive production. Pottery is an example of niche product.

The role in the economy

For underdeveloped and developing economies, a labor intensive industry structure can be a better option than a capital intensive one for quick economic development.[3] For countries which are not wealthy and generate low levels of income, labor intensive industry can bring economic growth and prosperity. In most cases, these low income countries suffer from scarcity of capital but have an abundant labor force, such as some Africa countries.[4] The use of such an abundant labor force may lead to industrial growth.

China has a large workforce and manufacturing industries contribute about 35 per cent to country's gross domestic product. The country has also become one of the world's leading manufacturing bases and leading suppliers of products such as household electric appliances, garments, toys, shoes and light industrial products.[3]

Supply of perfectly skilled labor to any industry can boost the industry growth rate. In this way, underdeveloped countries can improve their industrial economy without heavy capital investment.

Moreover, exportation of the products manufactured by labor intensive industries can strengthen the export base of any developing country. These exports help the economies in earning foreign exchange, which can be used for importing essential goods and services.

Measurement

There are multiple ways to measure labor intensity:

• Labor-capital ratio :the relationship between employment and capital stock. This ratio indicates the relative use of factors in an activity and the extent to which it is labor-intensive compared to capital-intensive.[5]
• The ratio between employment and value added, which indicates the labor intensity of production. This measure indicates the extent to which an activity absorbs labor for each unit of value added.

These two measures are different ways of measuring labor intensity, Neither is superior in itself, the choice of measure depends on the specific issue of interest.

However there is a limitation of this two measures: they only measure direct labor intensity and they exclude the extent to which sectors are linked to another sector of the economy. For instance, a given sector may  itself not be particularly labor-intensive, but it might utilize (as inputs) the output of other sectors that are highly labor-intensive.

A solution could be to consider employment multipliers by sector.

Employment multipliers essentially indicate what increase (decrease) in economy-wide jobs could be associated with a given increase (decrease) in final output of a sector.

References

1. ^ Kenton, Will. "Labor Intensive: What You Should Know". Investopedia. Retrieved 2020-04-25.
2. ^ "Labor Intensive Definition & Example". investinganswers.com. Retrieved 2020-04-25.
3. ^ a b "Labor-intensive Industries Expected to Play Important Role". china.org.cn. Retrieved 2020-04-25.
4. ^ "Main-d'oeuvre par pays - Carte des Pays - Afrique". indexmundi.com (in French). Retrieved 2020-04-25.
5. ^ Trade in Labor-Intensive Manufactures. (p. 86 - 115). 1968.{{cite book}}: CS1 maint: url-status (link)

Retrieved from "//en.wikipedia.org/w/index.php?title=Labor_intensity&oldid=1124033779"

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 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 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 outsourcingOutsourcing 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 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 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.

Examples of Labor Intensive Industries

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

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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 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 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 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.

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