Labour intensive

A labour intensive business is one in which the main cost is that of labour, and it is high compared to sales or value added. The obvious contrast is with a capital intensive business where the cost of capital assets is the main cost.

A labour intensive business is likely to have a high level of fixed costs, although this can vary considerably. Labour costs are never completely fixed, but reducing the size of a workforce is usually expensive, as is hiring people when (if!) sales increase again. This, at the very least, means that the salaries of permanent employees are not a variable cost in the short term.

A labour intensive business will obviously be exposed to wage increases. This can also be tricky to forecast as wage bills are influenced by both economic and industry specific factors. The extent to which any company is exposed to this risk, and the extend to which costs are fixed

Just a capital intensive business may attempt to reduce operational gearing by, for example, leasing or renting assets, a labour intensive one may try to reduce operational gearing by outsourcing or automation.

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