Labor Intensive Industry refers to that industry, which requires substantial amount of human labor to produce the industrial products. As the name suggests, these labor intensive industries use labor intensively. This means, the proportion in which labor is used for production is much higher than the proportion of capital.
In these
labor intensive industries, labor costs are much more important than the capital costs. Labor intensive industries usually do not carry high fixed cost. On the contrary, higher percentage of variable costs is incurred in the labor intensive industries. As these industries do not involve high level of fixed cost or high level of maintenance cost, they hold high earning potential. But, in case of high level of inflation in the Economy, the labor intensive industry can suffer to some extent. This is because, in the times of high level of inflation, the laborers can reveal their unwillingness to work at the same level of wage, as inflation lowers their real earnings.
Hospitality industry and coal mining industry are the industries, which hold a labor intensive industry structure. For the under developed and developing economies, labor intensive industry structure can be proved to be a better option than a capital intensive one. The countries, which are not rich and generate low level of income, labor intensive industry can bring economic growth and prosperity. In most of the cases, these low income countries suffer from scarcity of capital but are blessed with abundant labor force. If they can use this abundant labor force properly in their industry production, then they can experience industrial growth. Supply of perfectly skilled labor to any industry can trigger the industry growth rate. In this way, the under developed countries can improve their industrial economy without doing heavy capital investment.
Moreover, exportation of the products manufactured by labor intensive industries can strengthen the export base of any developing Country. These exports help the economies in earning foreign exchange, which can be used for importing essential goods and services. As the labor intensive industries generate employment on a large scale, they in a way contribute to economic well being.