For most production processes a certain amount of factor substitution is possible, and the longer the time frame under consideration, the easier such substitutions become. It will always be reasonable to assume that, where possible, firms will try and use as little as possible of the most expensive inputs in favor of less costly ones.

In almost any production process labor ends up being the most expensive input, and as a result many changes in production technology are geared to reducing labor in favor of other inputs. In part, those sectors of the economy where costs rise fastest are those where substitution of other inputs for labor is most difficult. Examples include, education and medicine and any portion of the service sector where face-to-face contact with a trained professional is necessary.

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