Arthur
Lewis, an economist, developed a model (called the Lewis Model) to analyse the
developmental process of an economy with respect to labour availability.
"In his
story a "capitalist" sector develops by taking labour from a
non-capitalist backward "subsistence" sector. At an early stage of
development, there would be available an "unlimited" supply of labour
from the subsistence economy which means that the capitalist sector can expand
without the need to raise wages. This results in higher returns to capital
which are then reinvested in further capital accumulation. In turn, the
increase in the capital stock leads the "capitalists" to expand employment
by drawing further labor from the subsistence sector. Given the assumptions of
the model (for example, that the profits are reinvested and that capital
accumulation does not substitute for skilled labor in production), the process
becomes self-sustaining and leads to modernization and economic development.
"The
point at which the excess labor in the subsistence sector is fully absorbed
into the modern sector, and where further capital accumulation begins to
increase wages, is sometimes called the "Lewisian
turning point" (or "Lewis
turning point") and has recently gained wide circulation in the
context of economic development in China." 1
China is
said to be at this "Lewis Turning Point" where surplus labor is
evaporating, pushing up wages, consumption and inflation. The 'turning point' marks the
point where manufacturing competitiveness and the pace of growth begin to turn
down as labor costs rise.The result may prompt manufacturers to switch to
cheaper countries such as India and Vietnam. 2
FYI: Arthur Lewis was the first person of African origin to be given a Nobel Prize for a category other than 'peace'.
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