A man is both a consumer and a producer. Labour is an important factor not only in production, but in all other economic activities.

Classical economists like Ricardo and Karl Marx gave prime place to labour as the main source of production.

The rule of labour is highlighted by the following factors:

1. Basis of Consumption:

Labour is a human factor and the main source of consumption. Utility is created (Production) for the satisfaction of his needs. Lord Keynes was of the view that a stimuli to investment comes via increase in consumption. When investment increases, income increases which leads to increase in consumption. The basis of this consumption is labour.

2. Basis of Production:


Producers produce the commodities when they are assured by consumers that their products would be consumed. Labour is the basis or the compulsory factor of production. It is a mobile factor and brings in use the other factors of production like land and capital.

3. Basis of Exchange:

Labour is a basis of not only consumption and production, but also it serves as a basis of exchange. A man needs so many commodities to fulfill his daily needs. He cannot produce all of them. He has to satisfy his needs by exchanging his surplus production with others. So labour serves as a basis of exchange.

4. Basis of Distribution:

National income is the result of the contribution of all the factors of production. So labour becomes the basis of this distribution of national income among all factors. The contribution of each factor depends on its marginal productivity. If labour is efficient, its share in national income would go up.

5. Basis of Economic Growth:

Technically sound and intelligent labour serves as a spinal cord of the nation. Efficient labour force makes proper use of the scarce natural resources of the country. Sincere, dedicated, devoted, hardworking and intelligent labour force helps the country to march on the path of development.