Theory Of Production And Cost

Factors of Production – Labour

Labour actually means any type of physical or mental exertion. In economic terms, labour is the efforts exerted to produce any goods or services. It includes all types of human efforts – physical exertion, mental exercise, use of intellect, etc. done in exchange for an economic reward. Let us see the features of labour as a factor of production.

Characteristics of Labour as a Factor of Production

1] Perishable in Nature

Labour is perishable in nature. This simply means that it has to storage capacity, i.e. labour cannot be stored. If a worker does not turn up to work for one shift his labour of that shift is lost completely. It cannot be stored and utilized the next day. That labour is lost permanently. A laborer cannot store his labour to use at another time. So we say labour as a factor of production is highly perishable.

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2] Labour is Inseparable from the Labourer

This means the physical presence of the laborer is compulsory. To sell his services the laborer has to be physically present at the place of production of goods or services. We cannot separate him and his labour power. So we cannot expect a welder to do his work from home, he has to present at the site of the work.

3] Human Effort

Labour is a unique factor of production in comparison with others. It is directly related to human effort, unlike the others. So there are certain special factors we must take into consideration when it comes to labour. Fair treatment of workers, rest times, suitable work environment, idle time, etc are just some such factors.

4] Labour is Heterogeneous

We cannot expect labour to be uniform. Every laborer is unique and so his labour power will also differ from the others. The quality and the efficiency of the labour will depend on the skills, work environment, incentives and other inherent qualities of the laborer.

5] Labour has Poor Bargaining Power

Labour as a factor of production has a very week bargaining power with the buyer of the services. It cannot be stored, isn’t very mobile and has no standard or reserve price. So generally laborers are forced to work for whatever wages the employer offers. In comparison to the employer, the laborers have very little bargaining power.

There is also the problem that laborers do not have any other reserves to fall back on. They are usually poor and ignorant. And this labour work is their only source of income. So they accept whatever wages the employer offers.

6] Not Easily Mobile

Labour as a factor of production is mobile, i.e. the laborers can relocate to the site of work. But there are many barriers to the movement of labour from one place to another. So we can say labour is not as mobile as some other factors of production like Capital.

7] Supply of Labour is relatively Inelastic

At any given point in time, the supply of labour in the market is inelastic. It cannot be increased instantly to keep up with the demand. So say there is a shortage of skilled labour in India, skilled laborers cannot be generated in a day, a week or even a year.

We may be able to import some labour for a short period. But generally, the supply of labour is very inelastic, since we cannot increase or decrease it instantaneously.

labour as a factor of production

Solved Question on Labour as a Factor of Production

Q: Labour is an active factor of production. True or False?

Ans: The statement above is True. Labour is an active factor of production. It is the factor that starts production. Land and Capital alone cannot start production, so they are passive factors. They need the active factor of production, i.e. labour to be productive themselves.

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