Lewis Model

Definition

The Lewis Model, also known as the Lewis Two-Sector Model, is an economic theory that explains the process of economic development in less developed countries by transitioning labor from the traditional agricultural sector to a modern industrial sector. This model emphasizes the role of surplus labor in agriculture and how its movement into industry can lead to increased productivity, economic growth, and urbanization.

5 Must Know Facts For Your Next Test

1. The Lewis Model was developed by economist W. Arthur Lewis in the 1950s and has been foundational in understanding economic development.
2. In the model, the traditional agricultural sector is characterized by low productivity and high levels of underemployment, which allows for surplus labor to be transferred to the modern industrial sector without reducing agricultural output.
3. The transition from agriculture to industry leads to higher wages and better living standards as more labor becomes employed in more productive jobs.
4. The model suggests that as industries grow and absorb surplus labor, this will eventually lead to diminishing returns in agriculture and higher levels of urbanization.
5. Critics of the Lewis Model point out that it oversimplifies economic dynamics and may not account for informal sectors or cultural factors affecting labor mobility.

Review Questions

• How does the Lewis Model explain the significance of surplus labor in driving economic development?
  • The Lewis Model highlights that surplus labor in the agricultural sector can be reallocated to the modern industrial sector without harming agricultural output. This transition allows for increased productivity and growth since workers moving to industry are employed in more productive environments, thus contributing to overall economic development. The movement of surplus labor also helps create a more dynamic economy by promoting urbanization and shifting employment patterns.
• Discuss how the dual economy concept within the Lewis Model illustrates the differences between agricultural and industrial sectors.
  • The dual economy concept is central to the Lewis Model, illustrating two distinct sectors: agriculture and industry. The agricultural sector is marked by low productivity and high underemployment, while the industrial sector has higher productivity levels and wage rates. This disparity encourages labor migration from agriculture to industry, allowing economies to harness surplus labor efficiently. The model suggests that this migration can lead to significant economic growth as more workers engage in productive industrial activities.
• Evaluate the relevance of the Lewis Model in today's global economy, especially in relation to developing countries.
  • The relevance of the Lewis Model in today's global economy lies in its framework for understanding labor dynamics during economic transitions in developing countries. While many countries have experienced shifts from agriculture to industry, the model’s assumptions about surplus labor may not fully capture contemporary challenges such as globalization, technological advancements, and informal employment sectors. Furthermore, some developing nations may struggle with structural barriers that prevent efficient labor mobility, calling for adaptations of the model that consider these complexities while still providing insights into economic development strategies.

Related terms

Dual Economy: An economic structure consisting of two distinct sectors: a traditional sector, typically agricultural, and a modern sector, usually industrial, each with different productivity levels and wage structures.

Surplus Labor: Labor that is available for work beyond what is needed to produce enough for subsistence in the agricultural sector; this surplus can be absorbed into the industrial sector for growth.

Urbanization: The process by which an increasing percentage of a population comes to live in urban areas, often driven by economic opportunities in the industrial sector.