Labor intensive definition
/What is Labor Intensive?
A business is labor intensive when the total cost of labor incurred is larger than the other costs of the business. A labor intensive business tends to have a high percentage of variable costs, in the form of wages. There are fewer labor intensive businesses than had been the case in the past, since improvements in efficiency and the introduction of automation have reduced the proportion of labor costs in many firms.
Advantages of a Labor Intensive Business
A labor intensive organization has a lower breakeven point than more capital intensive businesses, so the owners can earn a profit at a lower sales level. Also, a labor intensive business can lay off staff during an economic downturn in order to drive down its costs and remain in business.
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Disadvantages of a Labor Intensive Business
This type of business is subject to demands for higher wages, unionization, and the potential difficulty of sourcing new staff. Any one or all three of these issues can interfere with the ability of a firm to grow.
Examples of Labor Intensive Businesses
Farming, construction, and restaurants are all considered to be labor intensive businesses.