Labor, One of the Four Factors of Production

Why Your Work Is Critical to the Economy

Labor is the amount of physical, mental, and social effort used to produce goods and services in
an economy. It supplies the expertise, manpower, and service needed to turn raw materials into
finished products and services.

In return, laborers receive a wage to buy the goods and services they don't produce themselves.
Those without desired skills or abilities often don't even get paid a living wage. Many countries
have a minimum wage to make sure their workers earn enough to cover the costs of living.

Labor is one of the four factors of production that drive supply. The other three are:

Land. This is short for the natural resources or raw materials in an economy.
Capital. This is an abbreviation of the capital goods, such as machinery, equipment, and
chemicals that are used in production.
Entrepreneurship. This is the drive to profit from innovation.
In a market economy, companies use these components of supply to meet consumer demand.

The economy runs most efficiently when all members are working at a job that uses their best
skills. It also helps when they are paid according to the value of the work produced. The ongoing
drive to find the best match between skills, jobs, and pay keeps the supply of labor very dynamic.
For this reason, there's always some level of natural unemployment. For example, frictional
unemployment allows workers the freedom to quit a job in search of a better one.

How Labor Is Measured

Labor is measured by the labor force or labor pool. To be considered part of the labor force, you
must be available, willing to work, and have looked for work recently. The size of the labor force
depends not only on the number of adults but also how likely they feel they can get a job. It is the
number of people in a country who are employed plus the unemployed.

Not everyone who is jobless is automatically counted as unemployed. Many are jobless by
choice and aren't looking for work. Examples include stay-at-home moms, retired seniors, and
students. Others have given up looking for work. These are discouraged workers.

The real unemployment rate measures everyone who would like a full-time job. It includes the
discouraged workers. It also includes those who are working part-time only because they can't
get a full-time job. It's called the real unemployment rate because it gives a broader measure
unemployment.

The labor force is used to help determine the unemployment rate. The unemployment rate
formula is the number of unemployed divided by the labor force. It tells you how many people in
the labor force are jobless but are actively looking for work.

The labor pool shrinks during and after a recession. Even though many would like a job, they
aren't looking for work. They aren't counted in the labor force.
The labor force participation rate is the labor force divided by the civilian non-institutionalized
population. It tells you how many people are available and looking for work.

The amount of goods and services that the labor force creates is called productivity. If a certain
amount of labor and a fixed amount of capital creates a lot, that's high productivity. The higher
the productivity, the greater the profit. High productivity gives the worker, company, industry, or
country a competitive advantage.

Types of Labor
Labor can be categorized in many different ways. First is the skill level. The most basic is
unskilled labor that does not require training. Although it's usually manual labor such as farm
workers, it can also be service work, such as janitorial.

The next is semi-skilled labor that requires some education or training. An example is
manufacturing jobs.

Labor is also categorized by the nature of the relationship with the employer. Most workers are
wage employees. This means they are supervised by a boss. They also receive a set weekly or bi-
weekly wage as well as benefits.

Contract labor is when a contract specifies the work to be produced. It’s up to the worker to
define how it gets done. The amount paid is either commission or a set fee for the work. Benefits
are not paid.

A third type is slave labor. This is illegal. That's when the worker is forced to work for little
more than room and board. Child labor is another form of slave labor. Children don't really have
the ability to make a free choice as to whether they will work.

Labour: Meaning, Kinds and Importance | Economics

Meaning of Labour:

In simple meaning by ‘Labour’ we mean the work done by hard manual labour mostly work
done by unskilled worker.

But in Economics, the term labour mean manual labour. It includes mental work also.

In other-words we can say that Labour includes both physical and mental work undertaken for
some monetary reward.

In this way, workers working in factories, services of doctors, advocates, officers and teachers
are all included in labour. Any physical or mental work which is not undertaken for getting
income, but simply to attain pleasure or happiness, is not labour.

For example:
The work of a gardener in the garden is called labour because he gets income for it. But if the
same work is done by him in his home garden, it will not be called labour, as he is not paid for
that work. Further, if a mother brings up her child, a teacher teaches his son and a doctor treats
his wife, these activities are not considered ‘Labour’ in economics. It is because of the fact that
these are not done to earn income.

Definition of Labour:
1. According to Prof. Marshall – “Any exertion of mind or body undergone partly or wholly with
a view to earning some good other than the pleasure derived directly from the work.”

2. According to Prof. Jevons – “Labour is any exertion of mind or body undertaken partly or
wholly with a view to some good other than the pleasure derived directly from the work.”

3. As S. E. Thomas has said – “Labour connotes all human efforts of body or mind which are
undertaken in the expectation of reward.”

4. According to Waugh – “…………………… we define labour as human efforts used in

production.”

Therefore, important facts regarding Labour are:

(i) Only the work of man is included under Labour.

(ii) The physical and mental work undertaken for some monetary reward is included under
Labour.

(iii) Any work done for entertainment or for self-satisfaction is not included under Labour in
economics.

(iv) In Economics Labour has no relation with morality.

(v) Any work done by animal or bird is not Labour in Economics.

Kinds of Labour:
Labour can be classified under the following heads:

1. Physical and Mental Labour.

2. Skilled and Unskilled Labour.

3. Productive and Unproductive Labour.

1. Physical and Mental Labour:

Such work in which physical labour and physical strength is more important in comparison to
mental labour is called physical labour. For example—The work of Rickshaw Puller, workers
working in factory, porter who carries luggage on the platform.

But mental Labour is that in which brain is applied or mental fatigue is more in comparison to
physical fatigue, For example—The work of an advocate, teacher, doctor, chartered accountant
etc. For better performance of work mental and physical labour is essential.

2. Skilled and Unskilled Labour:

Skilled Labour is that in which special knowledge, learning, training and efficiency is required in
performing the work. For example—The Labour of engineer, doctor, teacher and a scientist has
been called as skilled Labour.

While the work in which special knowledge, training or learning is not required is known as
unskilled labour. For example—The work of rickshaw puller, porter carrying luggage on
platform is called unskilled. The remuneration of skilled worker is normally higher than that of
unskilled worker.

3. Productive and Unproductive Labour:

Productive Labour is that labour which adds net value to the product. While unproductive labour
is that which does not add net value. In other-words we can say that “Labour producing material
goods are productive and Labour producing perishable goods including services of servants,
teachers, doctors, lawyers etc. are unproductive.”

But according to Prof. Marshall all labour is productive. He saw-“no distinction in the work of
the baker who provides bread for a family and that of the cook who prepares rice or boiled
potatoes”. Modern economists following Marshall regard all Labour whether material or non-
material or services as productive.

Only that Labour is considered unproductive which is performed by anti-social persons such as
pickpockets, thieves, dacoits etc. But Labour used in constructing building, a dam etc. is
productive because the workers worked on them and receives wages.

In this connection Prof. Robbins has written “Whether Labour is productive or unproductive
does not depend upon its physical or mental nature of work. Rather it depends upon its relative
scarcity in relation to its demand. All kinds of Labour which has a demand and receives a wage
is regarded as productive.”

Importance of Labour in Production:

Labour is the fundamental and active factor of production Labour has important contribution to
the production of commodities. Labour is the exertion of mind and body undertaken with a view
to some goods other than the pleasure directly derived from the work. Like a commodity, Labour
cannot be stored and withdrawn from the market for a favourable time if the wage offered in low.

Further, Labour is inseparable from labourer and has to be be delivered personally, working
conditions or environment are of great importance. If the place of work is congenial and the
management is kind hearted, even a lower wage can be acceptable. Labour has a weak
bargaining power, therefore, the employer has an upper hand in Labour transactions and the
wage given is lower than it is due.

The supply of Labour cannot quickly adjust to the change in demand. The wages sometimes rule
higher and at other times lower than need be. As the Labour has no calculable cost of production,
it has to be satisfied with the wage it can receive or it receives.

Therefore, Karl Marx has said—”Capital is the collective shape of Labour performed in the past.
Land which has been made for productive purposes is the important effort of Labour”. Hence,
we cannot ignore the importance of Labour in Economics.

THE DIFFERENCE BETWEEN SKILLED AND UNSKILLED LABOR

Skilled labor requires workers to possess specific talents that are utilized within an industry. We
find work for engineers, welders, electricians, water supply specialists, and many others who
need highly specialized training and experience to fulfill particular needs.

Skilled labor doesn't just do the job either. Sometimes, they can contribute to re-thinking how the
job is done and employing new techniques and technologies when suitable.

These workers, of course, command a high wage. They lend businesses expertise, creativity, and
efficiency. A business that employs people in the right skilled labor jobs can gain a significant
advantage in its industry.

Unskilled labor simply refers to workers who lack technical training and expertise. Unskilled
labor jobs are just as crucial as skilled labor jobs. No engineer will get anything done without
workers to implement their plan, for example.

Though unskilled labor usually doesn't have the training requirements of skilled labor, talents for
managing, operating machinery, and implementing procedures are still highly valued. This
means that unskilled labor must also be matched well to businesses.

Aside from finding work for skilled laborers, we also focus on helping unskilled labor find
employment options that help them take charge of their job search.

Unskilled labor can still pay well, but the pay scale isn't as high as that of skilled laborers.
Mixed-Labor

Most businesses must employ a mixed-labor approach, where skilled labor can work on areas of
specific expertise, and unskilled labor can keep the business going on a day-to-day basis. A
successful company values both their skilled and unskilled labor, and considers finding the right
fit in any job a key part of that success.

Skilled Labor Vs. Unskilled Labor

Unskilled labor, when measured by educational attainment, refers to jobs that require a high
school diploma only, or could be filled by a high school dropout who masters specific skills.
Skilled labor requires additional skills or education. While the demand for unskilled labor has
decreased, the labor pool has also significantly decreased. Unskilled laborers are dropping out of
the job market or increasing their skill level.

Tip
Unskilled labor, when measured by educational attainment, refers to jobs that require a high
school diploma only, or could be filled by a high school dropout who masters specific skills.
Skilled labor requires additional skills or education.

Types of Skilled Labor

Skilled labor refers to labor that requires workers who have specialized training or a learned
skill-set to perform the work. These workers can be either blue-collar or white-collar workers,
with varied levels of training or education. Very highly skilled workers may fall under the
category of professionals, rather than skilled labor, such as doctors and lawyers.

Examples of skilled labor occupations are: electricians, law enforcement officers, computer
operators, financial technicians, and administrative assistants. Some skilled labor jobs have
become so specialized that there are worker shortages.

Types of Unskilled Labor

Unskilled labor does not require workers to have special training or skills. The jobs that require
unskilled labor are continually shrinking due to technological and societal advances. Jobs that
previously required little or no training now require training. For example, labor that was once
done manually now may be assisted by computers or other technology, requiring the worker to
have technological skills.

Examples of remaining unskilled labor occupations generally include farm laborers, grocery
clerks, hotel maids, and general cleaners and sweepers. While these jobs are considered
unskilled, each requires a degree of skill on the job. Farm laborers must operate precise
machinery. Maids have a specific set of tasks to perform and inventory management
responsibility while grocery clerks must manage money and learn how to stock shelves properly

Historical Context of Skill Requirements

Historically, unskilled workers had plentiful employment opportunities in America. From

farming to factory jobs, unskilled laborers were able to find work, even if this meant
transitioning from a farming community to factories in the cities. Unskilled laborers earned less
money than skilled laborers, but during the 1980s and 1990s the wage gap between skilled and
non-skilled laborers began to grow.

Today the job market demands increasing skill levels. Many jobs that were once considered
unskilled labor now demand semi- or mid-skill labor.

Semi- or Mid-Skill Labor

Semi- or mid-skill labor addresses the increase in demand for skills, even for less complex jobs.
These jobs require some skill because they are more complex than those that can be performed
by a non-skilled laborer. However, they do not require highly specialized skills.

Examples of mid-skill jobs include truck drivers, typists and customer service representatives.
These jobs generally require more than a high-school diploma, but less than a college degree.