The production operations of any business combine two-factor inputs:

• Labour – i.e. management, employees (full-time, part-time, temporary etc)

• Capital – i.e. plant & machinery, IT systems, buildings, vehicles, offices

The relative importance of labour and capital to a specific business can be described broadly in terms of their "intensity" (or to put it another way, significance).

• Labour-intensive production relies mainly on labour

• Capital-intensive production relies mainly on capital

Sounds simple! Some examples will help reinforce the point:

Labour intensive

• Food processing (e.g. ready meals)

• Hotels & restaurants

• Fruit farming/picking

• Hairdressing & other personal services

• Coal mining

Capital intensive

• Oil extraction & refining

• Car manufacturing

• Web hosting

• Intensive arable farming

• Transport (airports, railways etc)

The main features of each category can also be summarised as follows:

Labour intensive operations

• Labour costs higher than capital costs

• Costs are mainly variable in nature = lower breakeven output

• Firms benefit from access to sources of low-cost labour

Capital intensive operations

• Capital costs higher than labour costs

• Costs are mainly fixed in nature = higher breakeven output

• Firms benefit from access to low-cost, long-term financing