# Labor-Intensive Industries: Key Definitions, Examples and Financial Impact

## What Is Labor Intensive?

The term “labor intensive” refers to an [industry](https://www.investopedia.com/terms/i/industry.asp) that requires a large amount of labor to produce its goods or services. Since labor-intensive industries need more labor than [capital](https://www.investopedia.com/terms/c/capital.asp), labor costs are more important and larger than capital costs.

Examples of labor-intensive industries include agriculture, construction, healthcare, and hospitality.

The degree of labor intensity is typically measured in proportion to the amount of capital required to produce the goods or services. The higher the proportion of labor costs required, the more labor-intensive the business.

In labor-intensive industries, labor costs can change and adjust during economic slumps, giving flexibility, but these industries may still struggle with limited economies of scale.

Advances in technology and productivity have lowered labor intensity in some sectors. Economic development often moves labor from very labor-intensive industries like agriculture to manufacturing and services because of these advances.  

### Key Takeaways

*   Labor-intensive industries need a high proportion of labor compared to capital, emphasizing labor costs over capital costs.
*   Industries like agriculture and hospitality remain labor-intensive because they rely heavily on human effort despite technological advances.
*   Less-developed economies often have labor-intensive industries due to limited investment in expensive capital.
*   Increasing real wages motivates firms to invest in capital to improve labor productivity and manage higher labor costs.
*   Labor-intensive industries can adjust labor costs in downturns, though they face challenges like limited economies of scale.

![Labor Intensive](https://www.investopedia.com/thmb/DTUgmOG1qed3Q8ylARHYghYqL6k=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/LaborIntensive3-2-3304551ff5144e59864ec26cd20976b2.jpg)

*Labor intensity is typically measured in proportion to the capital required to produce the goods or services. — Matthew Collins / Investopedia*

## Exploring the Characteristics of Labor-Intensive Industries

Labor-intensive industries or processes require large quantities of physical effort to complete necessary tasks. In labor-intensive industries, the costs associated with securing the necessary personnel outweigh the capital costs in regard to importance and volume. Although many labor-intensive jobs require limited skills or education, not all positions have these low requirements.

Advances in technology and worker [productivity](https://www.investopedia.com/terms/p/productivity.asp) have moved some industries away from labor-intensive status, but many remain. Labor-intensive industries include restaurants, hotels, agriculture, and mining, as well as healthcare and caregiving.

Less-developed economies generally have more labor-intensive industries. Low [income](https://www.investopedia.com/terms/i/income.asp) limits investment in expensive capital, so labor-intensive methods are more common. Businesses can stay competitive with low wages by hiring more workers instead of investing in expensive capital. Over time, firms aim to transition from labor-intensive methods to capital-intensive ones.

Before the Industrial Revolution, 90% of workers were in agriculture. Food production was very labor intensive. Technological development and economic growth have increased labor productivity, reduced labor intensity, and enabled workers to move into manufacturing and (more recently) services.

> **Important**
>
> As real wages rise in the economy, it creates an incentive for firms to invest in more capital to raise labor productivity, so the firm can continue to afford the cost of more expensive labor.

## Challenges and Considerations for Labor-Intensive Sectors

Agriculture is a prime example of a labor-intensive industry. Jobs in this industry, which is closely related to the cultivation of foodstuffs that must be picked with minimal damage to the plant as a whole (such as fruit from fruit trees), are particularly labor intensive. Construction is labor intensive because most work involves hands-on tasks.

Even with tools, people still do most tasks in these industries. Many service industry jobs are also labor intensive. These positions include those within the [hospitality industry](https://www.investopedia.com/articles/active-trading/082615/key-financial-ratios-analyze-hospitality-industry.asp) and the personal care industry.

Labor costs cover all expenses to hire and keep workers, including wages and any benefits offered. Labor costs are considered variable, while capital costs are considered fixed.

Labor-intensive industries can adjust labor costs with layoffs or benefit cuts during downturns, offering some expense control. Labor-intensive industries face limited [economies of scale](https://www.investopedia.com/terms/e/economiesofscale.asp) and are vulnerable to labor market wage pressures.

## How Is Labor Intensity Measured?

Labor intensity is usually measured proportional to the amount of capital required to produce the goods or services. The higher the proportion of labor costs required, the more labor-intensive the business.

## What Does Labor Intensity Require?

Labor-intensive industries or processes require a large amount of physical effort to complete necessary tasks.

## Which Industries Are Labor Intensive?

Labor-intensive industries include:

*   Agriculture
*   Caregiving
*   Construction
*   Healthcare
*   Hospitality
*   Hotel
*   Mining
*   Personal care
*   Restaurant
*   Service  
    

## The Bottom Line

"Labor intensive" describes industries needing lots of human effort for their goods or services compared to capital investment. It's measured by comparing labor costs to capital needs. The more labor costs, the more labor intensive the industry is.

Examples of labor-intensive industries are agriculture, construction, healthcare, and hospitality. They continue to rely heavily on human effort despite advances in technology.

Challenges faced by labor-intensive industries include their vulnerability to wage pressures and limited economies of scale. But labor costs are variable and can be adjusted during economic downturns, offering these industries some flexibility in managing expenses.

Technological advancements have reduced labor intensity in some sectors, such as manufacturing and services, but not in others. That tech innovation, as well as increased productivity, has shifted economic development from labor-intensive to more capital-intensive industries.