CAPITAL INTENSIVE Vs LABAOUR INTENSIVE.

The purpose of factors of production is to convert raw materials into finished goods that mean to do production. Therefore both labor and capital are inputs that a firm can use to do the production

Capital intensive production refers to the production that requires higher capital investment such as financial resources, sophisticated machinery, more automated machines and the latest equipment. 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, plant and machinery, IT systems, buildings, vehicles, offices.

In Economics, labor is the all human efforts in the production. Labor does not only mean the laborers in an industrial site. If we take an example of a tourist resort, labor includes the receptionists, bell boys, bartenders, waiters, admin assistants, telephone operators, management, employees (full-time, part-time, temporary etc) agriculture, hotel industry, mining and other industries that require much manpower to produce goods and services. Labor-intensive production means that the way that a good or service is produced depends more heavily on labor than the other factors of production, such as capital. Labor intensive method of production is usually used for individual or personalized products, or to produce on a small scale. Examples of labor-intensive production are hotels, restaurants, small scale farming, pole-and-line fishing and mining. It requires a higher labor input to carry out production activities in comparison to the amount of capital required. 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 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.

 Capital intensive production requires more equipment and machinery to produce goods; therefore, require a larger financial investment while Labor intensive refers to production that requires a higher labor input to carry out production activities in comparison to the amount of capital required.

ADVANTAGE OF LABOR INTENSIVE PRODUCTION.

v  Staff (labor), unlike machinery can be used flexibly to meet changing levels of consumer demand, example temporary workers.

v   Can provide a ‘personal touch’ and be more in-tune with customer needs and wants.

v   Can provide tailor made products or services for different customer needs and wants. Machinery is not flexible enough to provide custom made products or services for individual customers.

v   Labor can provide feedback that provides ideas for continuous improvement. Workers can adapt to introduce new ideas.

v   Labor is always required to takeover in any event of breakdown of machinery.

DISADVANTAGE OF LABOR INTENSIVE PRODUCTION.

v   Relatively expensive in the long-term when compared to machinery – higher per unit costs due to lower levels of productivity.

v   Relatively inefficient and inconsistent levels of effort.

v   Labor relation problems, example may go on strike.

v  There could be a shortage of skilled labor, unlike machinery.

v  Problems in personal life could easily affect the performance at work

Advantages of capital intensive production

v  Reduces human error hence more accurate production.

v  Greater speed (efficiency) and uniform effort or output.

v  Technical economies of scale hence increased efficiency which could reduce average cost.

v   No problems with labor shortages or planning labor.

 

Disadvantages of capital intensive production

v  Initial high costs of investment and possible training costs.

v   Lack of flexibility in responding to a change in demand.

v  In contrast, labor can be used flexibly, example using temporary workers.

v   Machinery lacks initiative.