Question

Labor is typically 70 percent of the total cost of getting a product to market. Is that the only reason an entrepreneur should pay attention to labor employment? Explain why.

Answer 1

Labor makes up typically 70% of the total cost of getting a product to the market. But, that shouldn't be the only reason that an entrepreneur should pay attention to labor employment. As there are several other contingencies on the part of the entrepreneur while providing employment such as the firm's healthcare costs might increase drastically if the size of the labor was too high.

Entrepreneurs should pay attention to labor employment based on the fact that productivity and sales also increase the greater the productivity of the labor force. How skill-full the labor force is would indirectly reduce the total cost of getting a product to the market as per labor output will be high. Thus the laborers should also be increasing ultimately the output of the firm and the labor cost should be as low as possible in order for the entrepreneur to gain sustainable profits in the long run.

There is also the social pressure and the entrepreneur needs to pay attention to labor employment when the unemployment rate is increasing and the government is urging firms to increase the size of the labor force. Labor employment also comes into focus when minimum wages are raised, this leads to entrepreneurs demanding less of the labor force as their business will get impacted if it is not done so.

In order to meet the demands of the customers, even then entrepreneurs have to pay attention to labor employment because the right employees need to be present in order to take care of the needs of the consumers. Such as a call representative in order to handle customer concerns.

Thus at the end of the day an entrepreneur should pay attention to labor employment as per the needs and demands of the business and not merely as it being a particular percent of the cost.