What it is:
How it works (Example):
The production of goods and services requires labor and capital in varying amounts, depending on the product. If the labor cost outweighs the capital cost, it indicates that the production process is labor intensive. For example, mining is considered labor intensive because a majority of production costs are related to paying workers.
Other industries considered labor intensive include hospitality (hotels and restaurants) and construction.
Why it Matters:
Production costs for labor intensive goods and services are variable since businesses can add or subtract workers depending on business conditions. This allows producers to retain some control over production costs. During economic downturns, this can be an advantage over capital intensive producers, which normally have higher fixed costs.