The Lewis Model

                   The Lewis Model 

     In this article we will try to understand about the 'Dual Sector Model' proposed by Arthur Lewis. The model depicts the labour surplus and it's allocation with respect to the two sectors in economy. This mode is also known as 'Two Sector Model' because Lewis analysis is based on two sector economy namely subsistence agricultural sector and capitalist manufacturing sector and the transition of labor between them. 

I] Introduction

  According to Arthur Lewis, " The dual sector model" is a theory of development in which surplus labor from traditional sector transferred to the modern industrial sector (capitalist sector) whose growth over a time absorbs surplus labor promotes industrialization & stimulates sustained development. 

A] Capitalist Sector -

  Lewis defines this sector as "that part of economy which uses reproducible capital & pays capitalist thereof". The use of capital is controlled by the capitalist who higher the services of labor. It includes manufacturing, plantation, mines etc. The capitalist sector may be private or public. 

B] Subsistence or Traditional Sector - 

  This sector was defined by Lewis as, " that part of economy which is not using reproducible capital". It can be adjusted as the indigenous traditional sector or the self-employment sector. The per head output is comparatively low in this sector & this is because it is not fructified with capital. 

 II] Assumptions

1. This model assumes that a developing country/economy has a surplus of unproductive labor in agricultural sector.

2. The workers are attracted to the growing manufacturing sector where higher wages are offered. 

3. It also assumes that the wages in manufacturing sector are more or less fixed. 

4. Entrepreneurs in manufacturing sector makes profit because they charge the price above fixed wage rate. 

5. The model assumes that these profits will be reinvested in the business in the form of fixed capital. 

6. An advance manufacturing sector means an economy moved from traditional to industrial one. 

III] Illustration of Theory - 

1. In the model, the subsistence agricultural sector is characterized by low wages, an abundance of labour, low productivity through labor intensive production process. 

2. In contrast, the capitalist manufacturing sector is characterized by higher wage rates, high marginal productivity, demand for more workers & capital intensive production process. 

3. 
   

W - Level of wages in Capitalist sector

S - levels of wages in subsistence sector

Labor supply Oa, Total production ON1

         Capital expansion or surplus = Total          Production - Wages = WQ1N1 This surplus capital is again invested in capital sector for expansion. 

4. The primary relationship between the two sectors is that when the capitalist sector expand it draws or extracts labor from subsistence sector to capitalist sector. 

5. In the agricultural sector due to fixed input land the marginal productivity of additional labor is assumed to be zero according to the law of diminishing returns. This surplus labor can be move to another sector. 

6. In the capitalist sector the wage rate is comparatively high hence workers  will tend to transition from agricultural to capitalist sector.

7. Over the period of time as this transition continues to take place and investment results in increase in the capital stock and marginal productivity of workers in the manufacturing sector will be drive up by capital formation and drives down by additional labor. 

8. Eventually the wage rate in the agricultural sector and manufacturing sector equals, the agricultural marginal product equals to manufacturing  marginal product of labor, no further manufacturing sector enlargement takes place as workers have no monetary incentives to transition. 

                                        -Sudarshan Thakur.