Lewis Model on Labour and Industrialization

Lewis Model on Labour and Industrialization

News: The following article “Why the Lewis Model on labour and industrialisation has worked in China, not in India” was covered in Indian Express recently.

What is Lewis Model?
• The Lewis Model, also known as the Dual Sector model, is a model in Developmental economics that explains the growth of a developing economy in terms of a labour transition between two sectors, a traditional agricultural sector and a modern industrial sector.
• The model was put forward by Arthur Lewis, an eminent development economist, and envisages the capital accumulation in the modern industrial sector so as to draw labour from the subsistence agricultural sector.

What are key elements of Lewis model?
• Unlimited Supply of Labor - In less developed economies, there is typically an abundance of labor in the agricultural sector. This labor force is considered underemployed or surplus due to low agricultural productivity.
• Switch towards Industrialization - As industrialization begins, the surplus labor from agriculture moves to the industrial sector leading to increased output and industrial growth. This transfer of labor and capital accumulation helps drive economic development.
• Transformation of the Economy - Over time, as the industrial sector grows and labor moves away from agriculture, the economy transforms from primarily agrarian to more industrialized and modern.

Why was the model successful in China and not India?
• It is due to differences in industrialization, technological advancement, and labour transitions between these two countries.
• In China, the model was successful because of its ability to absorb a massive surplus rural labour force, turning China into the “world’s factory”. In contrast, India faces hurdles in implementing the Lewis Model because manufacturing is becoming more capital-intensive and reliant on labor-displacing technologies like robotics and artificial intelligence. This shift limits the ability of labour-intensive industries to absorb surplus agricultural labour.

How does Niti Aayog approach to this?
• NITI Aayog is developing a new economic model focusing on job creation in and around agriculture.
• The Niti Aayog aims to create employment opportunities by expanding activities related to agriculture such as aggregation, grading, processing, packaging, warehousing, transportation, and retailing.
• There is also a focus on biofuel production from crop stubble and residue, which could generate more jobs.