Lewis Model has proved successful for China, India grapples with its implementation, encountering challenges in the transition from agriculture to industrialization.Also, as manufacturing trends towards higher capital intensity, India contemplates shifting to a ‘farm-as-factory’ labor model in response.
Lewis Model
- In 1954, economist William Arthur Lewis put forth the “Economic Development with Unlimited Supplies of Labor”.
- For this work Lewis won Nobel Prize in Economics in 1979.
- The crux of the model suggested that surplus labor in agriculture could be redirected to the manufacturing sector by offering wages just high enough to attract workers away from the farm.
- This shift, in theory, would stimulate industrial growth, enhance productivity, and lead to economic development.
Lewis Model and China
- The model’s application in China was successful. Leveraging surplus rural labor and demographic advantages, China employed a dual-track system merging market forces with state planning.
- This strategy attracted foreign investment, boosted exports, and nurtured domestic industries.
- Extensive investments in infrastructure, education, and research and development enhanced China’s productivity and competitiveness, resulting in rapid industrialization, poverty reduction, and a substantial transformation of the economy.
Lewis Model and India
- Agriculture, historically employing the majority of India’s workforce, has seen a gradual decline in its share of employment.
- Contrary to expectations, this shift has not predominantly benefited the manufacturing sector, which has only experienced marginal growth in its share of employment.
- Employment in the manufacturing sector has decreased to 11.4% in 2022-23 from its peak of 12.6% in 2011-12.
- The decrease in manufacturing employment shows a trend of labor moving predominantly into services and construction, which contrasts the expected structural transformation outlined by economists Lewis.