- When considering how to produce goods/services most efficiently, firms will consider the nature of their good/service & the advantages & disadvantages of capital/labour intensive production
- Some industries require labour-intensive production & hire many workers
- This often occurs when jobs require technical skills which are difficult/expensive to automate e.g. teachers in a school or garment workers in a clothing factory
The Advantages & Disadvantages Of Labour-Intensive Production
Advantages
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Disadvantages
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- The firm can adjust the number of workers hired as demand for its goods/services fluctuate
- Depending on the industry, workers can build meaningful connections with customers which helps to create customer loyalty e.g. restaurant waiters versus iPad ordering
- Workers can generate new ideas & offer suggestions on how processes can be improved
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- There may be periods where worker productivity is low
- The firm may find it difficult to recruit workers when needed & letting go of staff when they are not required is unpopular
- The more skilled the labour required, the higher the wage bill for the firm will be
- Each worker requires both wage & non-wage benefits, which can prove expensive for the firm
- Workers can get ill & then are unavailable for work
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- Other industries are more capital-intensive or are gradually replacing labour with capital when it makes financial sense to do so - as wages rise in a country more labour will be replaced by capital (machinery)
- Constant improvements to technology & process innovation mean that firms are constantly evaluating the possibilities of moving from labour to capital-intensive production
The Advantages & Disadvantages Of Capital-Intensive Production
Advantages
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Disadvantages
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- Production can continue 24/7 with only short breaks so as to allow for machinery maintenance
- Machinery cuts down on human error & product quality remains consistent
- Absenteeism or a shortage of skilled workers are non issues with capital-intensive production
- The firm can reduce average costs as it benefits from technical economies of scale
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- The cost of purchasing & installing new machinery can be very high (but is often financed with a bank loan & paid off over a period of years)
- Most machinery cannot improve processes, although artificial intelligence innovation is changing this
- Switching capital for labour negatively impacts both the workers who lose their job & also the morale of the workers left behind
- Once the machinery is installed, it can be difficult for the firm to respond to changing customer tastes/fashions which require product changes
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