Lewis Model
In 1954, Nobel laureate Sir Arthur Lewis proposed a groundbreaking economic theory in his essay “Economic Development with Unlimited Supplies of Labor.” Lewis’s model argued that underdeveloped countries with a surplus of labor could achieve rapid industrialization by transferring workers from agriculture to manufacturing, creating a virtuous cycle of economic growth.
China successfully applied this model, transitioning from a rural, agrarian economy to the “world’s factory.” However, India’s experience with the Lewis Model has been less straightforward, and this article delves into the reasons behind its uneven success.
Lewis’s model emphasized the potential of countries with abundant, low-cost labor to fuel industrial growth. It was assumed that a rising capitalist sector could absorb surplus labor from subsistence agriculture, thereby boosting productivity. To achieve this, industries needed to offer wages slightly above subsistence levels, motivating workers to leave the family farm. In this scenario, new industries could proliferate without limits.
The Lewis Model, which advocated labor transfer from agriculture to manufacturing as a path to economic growth, played a crucial role in China’s development. However, India’s experience with this model has been marked by challenges and deviations from the original theory.
The changing nature of manufacturing, coupled with India’s unique demographic and economic realities, necessitates the adoption of a new development model that focuses on creating remunerative jobs within and around agriculture.
As India reevaluates its path to economic growth, it must address the complexities of its labor market and embrace innovative approaches to secure a prosperous future for its workforce.
The Lewis Model, proposed by Nobel laureate Sir Arthur Lewis, suggests that underdeveloped countries with surplus labor can achieve rapid industrialization by shifting workers from agriculture to manufacturing.
China leveraged its demographic dividend and transformed into the "world's factory" by successfully transitioning from an agrarian economy to a manufacturing hub.
India's experience with the Lewis Model has been marked by challenges, including a slower shift of the workforce from agriculture to manufacturing, the changing nature of manufacturing industries, and a need for a new development model.
India's labor market has seen fluctuating trends, with shifts in the workforce's engagement in agriculture and a declining share of employment in manufacturing.
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