The document summarizes several criticisms of the Lewis model of economic development:
1) It assumes a proportional relationship between capital accumulation, job creation, and growth in the modern sector that may not exist if capitalists invest in labor-saving technology.
2) It does not account for seasonal variations in labor demand and productivity in the agricultural sector.
3) Surplus labor may end prematurely as wages rise due to factors like unions and minimum wages that reduce profits.
4) It underestimates the full effects of population growth on factors like agricultural surplus and overall employment opportunities.
The document summarizes several criticisms of the Lewis model of economic development:
1) It assumes a proportional relationship between capital accumulation, job creation, and growth in the modern sector that may not exist if capitalists invest in labor-saving technology.
2) It does not account for seasonal variations in labor demand and productivity in the agricultural sector.
3) Surplus labor may end prematurely as wages rise due to factors like unions and minimum wages that reduce profits.
4) It underestimates the full effects of population growth on factors like agricultural surplus and overall employment opportunities.
The document summarizes several criticisms of the Lewis model of economic development:
1) It assumes a proportional relationship between capital accumulation, job creation, and growth in the modern sector that may not exist if capitalists invest in labor-saving technology.
2) It does not account for seasonal variations in labor demand and productivity in the agricultural sector.
3) Surplus labor may end prematurely as wages rise due to factors like unions and minimum wages that reduce profits.
4) It underestimates the full effects of population growth on factors like agricultural surplus and overall employment opportunities.
(Proportionality between employment creation and capital accumulation:
Lewis model assumes that there exists a proportionality in the labour transfer and employment creation in modern sector and rate of capital accumulation in the modern sector. The faster the rate of capital accumulation, the higher the growth rate of the modern sector and faster the rate of new job creation. But if the capitalists reinvest their profits in the labour-saving capital equipment rather increasing the labour employment (what has been assumed in Lewis model) the jobs will not be created and modern sector will not expand. Peak harvesting and sowing season: Lewis did not pay attention to the pattern of seasonality of labour demand in the agricultural sector. Labour demand varies considerably and such demand is at its peak during the sowing and harvesting season. Thus during some months of the year the marginal product of labour may be above-zero. In such situation, the positive opportunity costs will involve in transferring the labour from agricultural sector. As a result, the labour transfer will reduce agricultural output. Rise in urban wages: surplus labour itself may end pre-maturely because competitors (producers) may alter wage rates and lower the share of profit. Moreover, the wages in industrial sector were forced up directly by unions, civil service wage scales, minimum wage laws and MNCs (multinational corporations) hiring practices tend to negate the role of competitive forces in the modern sector labour market. Again, the wages in subsistence sector may go up indirectly through rise in productivity in this sector. Full impact of growing population: Lewis model underestimates the full impact on the poor economy of a rapidly growing population, i.e., its effects on agricultural surplus, the capitalist profit share, wage rates and overall employment opportunities. Similarly, Lewis assumed that the rate of growth in manufacturing sector would be identical to that in agri. sector. But, if industrial development involves more intensive use of capital than labour, then the flow of labour from agricultural to industry will simply create more unemployment. Ignoring the balanced growth: Lewis ignored the balanced growth between agricultural sector and industrial sector. But we know that there, exists a linkage between agricultural growth and industrial expansion in poor countries. If a part of profits made by capitalists is not devoted to agri. sector, the process of industrialization would be jeopardized (perhaps, due to reduced supply of raw material). Process of migration is neither smooth nor costless: Lewis assumed that the transfer of unskilled labour from agricultural to industry is regarded as almost smooth and costless. But, practically it is not so as industry requires different types of labour. If this problem is removed with the help of investment in education and skill formation, the process of migration will become costlier and expensive.