Labour-intensive or Capital-intensive
production?
It is important to distinguish between capital-intensive and labourintensive methods of production.
Capital-intensive
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‘Capital’ refers to the equipment, machinery, vehicles and so on
that a business uses to make its product or service.
Capital-intensive processes are those that require a relatively
high level of capital investment compared to the labour cost.
These processes are more likely to be highly automated and to
be used to produce on a large scale.
Capital-intensive production is more likely to be associated with
flow production (see below) but any kind of production might
require expensive equipment.
Capital is a long-term investment for most businesses, and the
costs of financing, maintaining and depreciating this equipment
represents a substantial overhead.
In order to maximise efficiency, firms want their capital
investment to be fully utilised (see notes on capacity
utilisation).
In a capital-intensive process, it can be costly and timeconsuming to increase or decrease the scale of production.
Labour-intensive
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‘Labour’ refers to the people required to carry out a process in
a business.
Labour-intensive processes are those that require a relatively
high level of labour compared to capital investment.
These processes are more likely to be used to produce individual
or personalised products, or to produce on a small scale
The costs of labour are: wages and other benefits, recruitment,
training and so on.
Some flexibility in capacity may be available by use of overtime
and temporary staff, or by laying-off workers.
Long-term growth depends on being able to recruit sufficient
suitable staff.
Labour intensive processes are more likely to be seen in Job
production and in smaller-scale enterprises.