This paper deals with the trade-off between labor and capital. For the purposes of this paper, labor is defined as compensation (pay and benefits), and capital is defined as plant, equipment, and land assets. In addition, this paper is interested in the trade-off between labor (faculty) and capital (technology). The economic trade-off model suggests the following general rules:

1. Labor can maintain its relative value to capital by possessing a non-replicable set of skills due to their knowledge about their capacity to produce a service, in the case of education, teaching a student.
2. Capital, that is technology, cannot be substituted easily for faculty because their unique knowledge is difficult to replicate the knowledge and special skills to produce a service or an educated student.
3. Capital, technology, as it improves its operational design to deliver education or educational skills, will replace labor.
4. Depreciation is a major issue in comparing the trade-off between labor (faculty) and capital goods (technology). The latter is depreciated while the former is carried at full cost. Although economists may describe the supply of faculty as human capital, they are not treated as such on financial reports. Because faculty are always carried at full costs, financial reports give the impression that given an equal ten-year supply of labor and capital goods, labor will tend to be worth more, which makes investment decisions more problematic.
5. An underlying assumption on trade-offs is that they are fluid and easily made. However, this assumption is violated when regulations or contracts limit the tradeoff. For example, these obstacles to trade-offs are evident in higher education:
   1. Accreditors often regulate how courses are taught or how programs are delivered;
   2. Government regulations can constrain the trade-off between faculty and technology;
   3. Tenure makes it costly to release instructors and replace them with technology;
   4. College mission statements may require the use of faculty to instruct students;
   5. Student markets may prefer faculty over technology;
   6. Donors who would like to maintain traditional instruction and favorite faculty may oppose replacing them with technology.

The following table illustrates the current trade-off between compensation and plant. Compensation is a proxy for faculty because of how IPEDS classifies its data.[1] Since IPEDs does not clearly separate faculty compensation or technology, the data uses total compensation and plant, equipment, and material as proxies for labor and capital goods. The table uses a ratio of total compensation to total plant by year.