Lewis Theory of Unlimited Supply of Labour

Lewis Model

A theory developed by W. Arthur Lewis in 1954 explaining economic development in labour-abundant, capital-scarce economies.

Dual Sector Model

Another name for the Lewis Model, highlighting the two distinct sectors in the economy: capitalist and subsistence.

Capitalist Sector

The modern, industrial, profit-oriented part of the economy characterized by higher productivity.

Subsistence Sector

The traditional, agriculture-based part of the economy with low productivity.

Labour Surplus

The excess labour available in the subsistence sector that can be absorbed by the capitalist sector.

Objectives of the Lewis Model

To bring underdeveloped economies into self-sustaining growth through labour transfer and capital accumulation.

Unlimited Labour Supply

An assumption of the Lewis Model that suggests an endless supply of labour at a constant wage from the subsistence sector.

Capitalist Surplus

The difference between the marginal product of labour and the wage, which is reinvested to boost capital stock.

MPL (Marginal Product of Labour)

The additional output generated by an additional unit of labour, used to gauge capitalist surplus.

Urban Wages

Wages in the capitalist sector that are higher than those in the subsistence sector, designed to attract migration.

Mechanism of Growth

The process where labour moves from rural subsistence to urban capitalist sectors, which drives economic growth.

End of Growth Process

Occurs when wages rise in the capitalist sector, leading to reduced profit margins and halted growth.

Diagrammatic Representation

A visual illustration showing the relationship between wages, labour supply, and MPL in the Lewis Model.

Perfectly Elastic Supply Curve

The horizontal supply curve indicating unlimited labour supply at a constant wage in the subsistence sector.

Criticism of the Model

Includes over-simplistic assumptions, ignoring of labour-saving technologies, and neglect of complex migration dynamics.

Self-Sustaining Growth

Economic growth that continues without needing external input, a key goal of the Lewis Model.

Surplus Reinvestment

The practice of reinvesting profits in the capitalist sector, which leads to job creation and further economic growth.

Higher Productivity

A characteristic of the capitalist sector that allows it to generate profits compared to the subsistence sector.

Labour Migration

The movement of workers from the subsistence sector to the capitalist sector, encouraged by wage differentials.

Technological Improvements

Advancements that can increase subsistence sector productivity, potentially altering the growth dynamics outlined in the Lewis Model.

Foundational Model

A concept that remains fundamental in development economics, particularly for labour-surplus economies transitioning to industrialization.