Skip to main content

Translate

W. A. Lewis' Theory of Unlimited Supply of Labour & It's Criticism

Topics:

W. A. Lewis believed that in underdeveloped countries supply of labour is unlimited at a subsistence wage rate. Economic development takes place when this surplus labour is withdrawn from subsistence sectors and placed in the capitalist sector through capital accumulation. In other words, the transfer of labour from the labour surplus agriculture sector to the industry sector will promote the balanced development of both sectors. 

Lewis' model divided the economy into two major sectors i.e. the capitalist sector and the subsistence sector. The capitalist sector is defined as " the part of the economy which uses reproducible capital, and pays capitalists for the use thereof." In the capitalist sector, the use of capital is controlled by capitalists, who hire the service of the labour. On the other hand, the subsistence sector doesn't use reproducible capital hence total productivity is lower than the capitalist sector. 

However, industries require skilled labour, according to Lewis, skilled labour is only a quasi-bottleneck or a temporary bottleneck. Which can be removed by providing training facilities to unskilled workers. 

The key to economic development as per lewis' theory is capital formation and it is only possible by capitalism.

three components of Lewis' theory are as follows :


1. Role of Technology in Development.

2. Role of private capitalists in the development process.

3. Role of government. 

4. Role of bank credit.


Criticism of Lewis' Model of Development 

1. The theory assumes that the wage rate will remain constant till surplus labour in the capitalist market is exhausted which is unrealistic.

2. The assumption of the unlimited supply of labour in a developing country is also unrealistic.

3. It gives too much priority to the capitalistic market whereas leaving agriculture and another primary sector of the economy which are mostly interrelated. 

4. Lewis' theory assumes that marginal productivity in the agriculture/ substantial sector is almost zero which is not correct. Schultz thought that the marginal productivity of labour in an overpopulated economy would not be zero.

5. It is very difficult to find out the exact number of surplus labourers who would move from the substantial sector to the capitalist sector. 

6. Lewis assumes that the withdrawal of labour from substantial sectors will not affect productivity in the substantial market, which is not correct. 

Lewis also promulgated the concept of dualism for the post-war emerging economy where the modern, as well as traditionally backward sector, coexists. 

Comments

Post a Comment

Popular posts from this blog

New-Age Free Trade Agreements: Shaping India’s Economic Future

     In an era of global economic realignment, India stands at a pivotal juncture, leveraging new-age Free Trade Agreements (FTAs) to propel its ambition of becoming a $5 trillion economy by 2030 and a global trade powerhouse. Unlike their predecessors, which focused narrowly on tariff reductions, modern FTAs are comprehensive, encompassing digital trade, intellectual property rights (IPR), sustainability, labor standards, and geopolitical strategies. For India, these agreements are not mere trade pacts but strategic instruments to drive export-led growth, attract foreign direct investment (FDI), enhance industrial competitiveness, and foster inclusive development.      As of May 2025, India’s merchandise exports stand at $437 billion (April 2024–February 2025), with services exports at $340 billion, and FTAs are poised to amplify these figures. Yet, the path is fraught with challenges—trade deficits, domestic capacity constraints, and geopolitical trade-of...
Post a Comment
Read more

Unified Pension Scheme (UPS) vs. National Pension System (NPS)

  The Indian government's introduction of the Unified Pension Scheme (UPS), effective from April 1, 2025, marks a significant shift in retirement planning for central government employees. This new scheme aims to combine the predictability of the Old Pension Scheme (OPS) with the contributory nature of the National Pension System (NPS). For employees seeking a stable and assured post-retirement income, UPS presents a compelling alternative to the market-linked NPS. Key Differences Between UPS and NPS 1. Pension Structure 2. Employee and Government Contributions 3. Inflation Adjustment 4. Family Pension 5. Lump Sum Payment at Retirement Comparative Example: UPS vs. NPS UPS : Provides a guaranteed pension amounting to 50% of the average basic pay from the last 12 months of service, given a minimum of 25 years of service. For those with 10 to 25 years of service, the pension is proportionate to their service duration, with a minimum pension of ₹10,000 per month. NPS : Offers a p...
Post a Comment
Read more

Ranger Nurkse's theory of balanced growth

R. Nurkse's theory of balanced growth believes that underdeveloped countries are suffering from the  vicious circle of poverty, which is determinantal to economic development in these countries.  According to him "a circular constellation of forces, tending to act and react upon one another in such   a way as to keep a country in a state of poverty." The vicious circle of poverty adversely affects  the accumulation of capital in economically underdeveloped countries. If this vicious circle of poverty is broken then development will follow.  According to Nurkse "the expansion of the market can be realized only through a process of balanced growth, where people in different countries,  working with new and better tools, become each other's consumers. The vicious cycle works on both the demand and supply sides. On the supply side, there is a small capacity to save due to a low level  of income, the low level of income results in low productivity whic...
Post a Comment
Read more