Lewis Two-Sector Model: Sustaining Economic Growth Through Labor Transfer

Lewis Two-Sector Model, based on the assumption of surplus labor in agriculture, explains how transferring labor to the industrial sector boosts economic growth. The model highlights the shift from traditional to modern sectors, increased output, wages, and profits, and self-sustaining growth capabilities. Despite its strengths in promoting growth, the model has limitations related to dualism and income distribution implications. Overall, it provides insights into balancing sectoral growth for developing economies.

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• Lewis Model
• Economic Growth
• Labor Transfer
• Dualism
• Sectoral Development

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Uploaded on Mar 26, 2024 | 0 Views

Presentation Transcript

1. LEWISS MODEL OF UNLIMITED SUPPLY OF LABOUR

2. Lewis Two Sector Model Transfer of surplus labour Agriculture Industrial (Traditional ) Sector (Modern)Sector Capture the excesslabour Surplus of labour

3. ASSUMPTIONS The model assumes that a developing economy has a surplus of unproductive labor in the agricultural sector. These workers are attracted to the growing manufacturing sector where higher wages are offered. It also assumes that the wages in the manufacturing sector are more or less fixed. The model assumes that these profits will be reinvested in the business in the form of fixed capital. An advanced manufacturing sector means an economy has moved from a traditional to an industrialized one. Real wage is determined by the average and not the marginal product of labour.

4. How the Model Argues to Sustain Economic Growth

5. Lewis Two Sector Model

6. Increases in output, wagesand profit Employment increases, Larger profit invested Economy capableof self - sustaining growth Absorb surplus labor Output expanded

7. How it Contribute to Economic Growth Total output rises while total wages and profits increase. The larger area of profits will be invested in expanding production. Modern sector expands absorbs pool of surplus labor. Increasing the total capital stock, shifting the total product and labor demand curves, and raising the level of modern- sector employment. Economy capable of self-sustaining growth.

8. Strength Weakness Balance growthbetween 2 sectors(dualism) The notion of an exogenous unskilled agricultural realwage The model had implication forincome distribution Labor surplus was interpreted as zero marginal productivityof agriculturallabor The model applied to labor movement across countries, along with movements amongtwo sectors in the closed economy Surplus exist in ruralarea is not valid

9. Conclusion Dualismin theModel Pros& Cons Application InReality