Goods and services can be produced in more than one way. For example, the production of cloth can be made either with the help of hand loom or with the help of power loom. The first one is labour intensive technology of production and the second one is capital intensive technology of production.

When a farmer makes use of wooden plough, bullocks, etc. in the production of food grains he uses the labour intensive technology of production. On the other hand when he uses tractor, pump set, harvester in the production of food grains, he uses capital intensive technology of production.

The technology of production can be of two types:

  1. Labour Intensive Technology
  2. Capital Intensive Technology

1. Labour Intensive Technology

When we make more use of labour and less use of capital per unit of output in the production of the commodity that is called labour intensive technology. This type of technology is used in household enterprises and in the enterprises which make production for self consumption or in case of small scale production.

2. Capital Intensive Technology

When we make more use of capital and less use of labour per unit output in the production of the commodity that is called capital intensive technology of production. This type of technology is used when the production is made on a large scale for sale in the market in order to earn profit. In corporations and government enterprises generally there is the use of capital intensive technology of production because there is large scale production of goods and services.

Division of Labour

Another aspect of organising the production activity is division of labour. Division of labour increases the efficiency of workers due to which large scale production becomes possible. Division of labour means splitting up of the production activity into many processes and assigning every process among different workers according to their aptitude and ability.

Division of labour is of the two types:

1. Product based division of labour: If a worker specialises in the production of a single good or service, it is called product based division of labour. In case of small farmers, a potter, a cobbler or a carpenter in a village, there is the use of product based division of labour. It is very common in household enterprises of developing countries like India.

When the production is made for self consumption or on a small scale there is the use of product based division of labour. For example, most of the farmers in India make production of food grains mainly for self consumption. All of them make use of product based division of labour.

2. Process Based Division of labour: In big production units like corporations and government enterprises where the production is made on a very large scale, there is the use of process based division of labour. In case of process based division of labour, the production of a commodity is divided into many processes and a worker specialises in one or two processes, that is called process based division of labour.

For example, Britannia Bread Company manufactures bread. Raw material for bread is wheat flour. Conversion of wheat flour into bread requires three or four
processes. The flour has to be converted into dough and dough has to be kept into containers for baking. Containers are kept in ovens for baking. The baked bread is cut into appropriate size and packed. All processes required in manufacturing of bread are undertaken by different workers and nobody can claim that he has manufactured the bread. He can say that he has performed one or two processes in the preparation of the bread.

In government sector also, the supply of any single good or service depends on the process based division of labour. For example, a simple street lighting to be provided in a newly constructed group housing complex. It undergoes several processes. First is the installation of electric poles in the streets. The second process is connecting all the poles with electric wires. The third is fitting electric bulbs and tubes and the final stage is the release of electric supply form sub-station. All these processes are undertaken by different workers. For removing any defect in the functioning of the system, these are another team of workers from maintenance department who put the system in order.

Division of labour increases the efficiency of workers and lead to the possibility of inventions and discoveries because of repetitive nature of work. It encourages the use of machines in place of manual labour. It also leads to the use of capital intensive technique of production.