Law and economics notes pdf
Q. 6. What are labour intensive techniques? Give arguments in favour of and against labour-intensive techniques.
Ans. Labour-intensive techniques may be known as capital saving and labour-intensive techniques which are adopted in underdeveloped and developing countries. The labour-intensive technique is one which uses a larger amount of labour and a smaller amount of capital. According to Prof. Reddaway, “Labour-intensive technique is one in which a larger amount of labour is combined with a smaller amount of capital.” In the words of Prof. H. Myint, “Labour-intensive methods are those that require a large quantity of labour with a given amount of capital.” It is a technique of increasing output emphasising a raising labour productivity per unit of capital.
These techniques of production fulfil two major objectives of skill and capital formation. The choice of more labour-intensive techniques is likely to increase either more consumption or greater employment opportunities in the economy over a period of time. The underdeveloped countries, like India, Indonesia, Mexico and others can increase the production of agricultural goods through the minor irrigation schemes, better tools and other farm implements. But they generally fail to use output increasing labour-intensive techniques for the want of proper skills and capital investment. In such economies, people are forced to prefer the use of traditional methods over output increasing methods of production due to certain limitations.
An argument in Favour of Labour-Intensive Techniques
(1) Generates More Employment Opportunities: The first and the foremost argument advanced in favour of labour-intensive technique is that it generates more employment opportunities. The main feature of. underdeveloped and developing countries is the abundance of idle manpower on one hand and the scarcity of capital on the other hand. It is only by using labour-intensive techniques that increasing employment opportunities can be provided to the growing ‘idle unemployed labour force.
(2) Increase in Production at Lower Cost of Production: Another argument advanced in favour of labour-intensive techniques is the increase in production at cheaper rates. In underdeveloped developed countries the real wage rate per unit of labour is extremely low as compared to developed countries. This will keep the cost of such a technique lower , than for any other technically comparable capital-intensive technique. It is bound to decrease the cost of per unit production which is bound to increase the consumption leading to more demand. In order to meet the increasing demand, production will automatically increase at a lower cost of production.
(3) Utilisation of Scarce Capital: In underdeveloped and developing countries, there is an acute shortage of capital and entrepreneurial resources.
The Use of labour-intensive techniques will encourage the optimum utilisation of the scarce capital in more important areas of production,
such as, production of’ çonsumer goods.
(4) Higher Standard of Living: Increase in production on account of the low cost of production, more employment opportunities is, increase in demand due to more consumption and optimum utilisation of scarce capital and other scarce resources is bound to raise the standard of living
of the people.
(5) Equitable Distribution of Income: Another argument advanced in favour of labour-intensive techniques is the equitable distribution of income. As a matter of fact, the labour-intensive project will tend to raise the income level of a relatively large level of low-income workers. increase in employment, production, consumption, demand, wages etc. will tend to spread higher equality to a common man. This haves the way for an egalitarian society.
(6) Control on Inflationary Pressures Another. the argument advanced in favour of labour-intensive techniques is that they are indispensable for counteracting inflationary pressures in underdeveloped and developing countries. Due to the low cost of production, increase in consumption and demand, labour-intensive techniques rapidly increase the supply of consumable goods and thereby obviate the danger of inflation.
(7) Saving in Foreign Exchange: Labour-intensive techniques are import-light, i.e., they are simple and light tools and implements which can be easily manufactured within the country. Thus, they need not be imported from abroad. In this way, there is a considerable saving of valuable foreign exchange.
(8) Decentralization: Another argument advanced in favour of labour-intensive techniques is that they are spread out into villages and towns, enjoy all the advantages of decentralization and avoid the evils of the factory system.
(9) Short Gestation-Period: Another argument advanced in favour of labour-intensive techniques is that these techniques are less mechanised because they are based on indigenous technology and therefore involve a short gestation period. This advantage of being able to cut short the period betweén the inception of a project and its operation, not only
reduces costs but also makes the output flow quickly and provides employment with little loss of time.
(10) Saving of Economic and Social Overheads: Another argument advanced in favour of labour-intensive techniques is that they lead to a considerable saving in expenditure on the development of economic and social overheads because these industries using these techniques are usually established in villages and towns which require less expenditure on roads, means of transport, house buildings and other civic amenities.
Arguments against Labour-intensive Techniques
(1) Costly Labour: The first and the foremost argument against the labour-intensive techniques, is that the wages rate, though low, is no indication that labour is cheap. lt is pointed out that the productivity of this labour. being low, it is unşkilled and inefficient, and therefore costly in the real sense.
(2) Static and of Short Duration in Nature: Another argument advanced against labour-intensive techniques is that they are static and of short duration which cannot be applied in the long-term period.
(3) Lack of Skills and Capital Investment: Another argument advanced against labour-intensive techniques is that the less developed countries generally fail to use the output increasing labour-intensive techniques for the want of proper skills,and capital investment. In such economies, people are forced to prefer the use of indigenous and traditional techniques due to certain limitations.