Question

Lewis's two-sector model is said to be a good description of industrialization in East Asia. What is the essence of this model?

Answer 1

Lewis's two sector model was in the context of labour surplus economy. Lewis model consisted of two sectors :

• Traditional agricultural sector
• Modern industrial sector

There is an existence of huge population in the labour market in the agricultural sector so the marginal prdouct of labour is zero.

The essence of this development economy is that a surplus in the labour market is created when there is a transfer of labour from the agricultural sector, in which they add no value, to the modern sector. This can further lead to economic growth and development. There is a disguised unemployment in the labour sector which further can not earn more from it, tends to relloacte themselves to modern sector in order to fit in. Surplus of unskilled labour to the industry hold downs the cost induced by the labour at the existing wages. Higher demand of labour can lead to higher profit.