What is Capital Intensive?
Capital intensive refers to the
production that requires higher capital investment such as financial
resources, sophisticated machinery, more automated machines, the latest
equipment, etc. 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, etc.
What is Labour Intensive?
Labor intensive refers to the production
that requires a higher labor input to carry out production activities
in comparison to the amount of capital required. Examples of labor
intensive industries include agriculture, restaurants, hotel industry,
mining and other industries that require much manpower to produce goods
and services. 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 vs Labour Intensive
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 and labor intensive refer to types of production methods followed in the production of goods and services.
• Capital intensive production requires more equipment and machinery to produce goods; therefore, require a larger financial investment.
• Labor intensive refers to production that requires a higher labor input to carry out production activities in comparison to the amount of capital required.
