Labor is the human effort used to produce goods and services. It includes physical work, mental work and the skills people apply to a task. The term can also refer collectively to workers.
A carpenter making a component, a designer preparing a specification and a server serving customers all contribute labor. The Federal Reserve’s factors-of-production explanation distinguishes labor from capital, such as tools, machinery and buildings.
Direct and indirect labor
Direct labor can be traced to a particular product, job or service. Examples include assembly time for a product or a consultant’s hours on a client assignment. It is not restricted to manufacturing.
Indirect labor supports work without being readily traced to the individual item being costed. A production supervisor overseeing several jobs is an example. The distinction depends on the cost object, meaning the product, service, project or department whose cost is being measured.
OpenStax explains direct labor and manufacturing overhead. Factory supervision can be manufacturing overhead, while general administration is normally a separate operating expense. Indirect does not automatically mean manufacturing overhead.
What is labor economics?
Labor economics studies work and employment, including workers’ decisions, employers’ demand, wages and unemployment. Skills, technology, bargaining arrangements and employment institutions help shape outcomes.
The labor force is a statistical concept with a defined survey scope. In the US Current Population Survey, it comprises employed and unemployed people within the civilian noninstitutional population age 16 and older.
Unemployed people generally must have no employment, be available for work and have actively searched during the preceding four weeks. People on temporary layoff expecting recall can qualify without an active search. Someone without a job is therefore not necessarily classified as unemployed.
Participation and unemployment measure different things
Suppose the relevant population contains 150 people: 90 employed, 10 unemployed and 50 outside the labor force. These are invented figures, not current US statistics.
The labor force is 100. Participation is 100 divided by 150, or 66.7% when rounded. The unemployment rate is 10 divided by 100, or 10%. Participation uses the population base; unemployment uses the labor force.
Labor and labour
Labor is the usual US spelling. Labour is common in British English. Official organization names retain their own spelling.
Last checked and updated on November 2, 2026 by the MBN editorial team.