Labor

The collective or generic name given to all the various productive services provided by human beings, including physical effort, skills, intellectual abilities and applied knowledge. Although a market society with a complex division of labor involves hundreds or even many thousands of discrete types of labor differentiated according to the kinds of skills and abilities required (each with their own separate but interconnected labor markets), economists often find it useful for theorizing to simplify the real situation by speaking as though there was only one homogeneous kind of labor to be considered, with this single factor of production being freely and easily substitutable across all different alternative production processes for all different sorts of goods and services. When economists moving beyond such very simple models of the economy want to recognize the reality that acquiring specialized labor skills involves a process of specialized learning that is often very costly and time-consuming, they are apt to refer (somewhat contradictorily and confusingly) to "investment in human capital" and treat the individual's process of decision-making in deciding what sorts of training to pursue according to a marginal costs of production and marginal revenues logic analogous to firms' decision-making processes in choosing to invest in physical capital.

[See also: human capital, fiscal policy, factors of production, marginal analysis, unemployment, productivity]