Lewis theory of_unmlimited_supply_of_labour

Lewis theory of_unmlimited_supply_of_labour

• 1.
  LEWISTHEORYOF UNMLIMITEDSUPPLY OFLABOUR
• 2.
  LEWIS MODEL • Themodel seeks to explain that by judiciously exploiting their unlimited supply of labour,the less developed countries can stimulate their domestic capital formation & thereby the process of growth. • “ECONOMICDEVELOPMENTWITHUNLIMITEDSUPPLY OFLABOUR”
• 3.
  ASSUMPTIONS • Because ofthe high density of population in less developed countries, many people are disguisedly unemployed. • The supply of labour is perfectly elastic at the subsistence rate of wages. • Less developed economies are dual economies.
• 4.
  Featuresof lewismodel Mobilisationoflabour less developedcountries should mobilise labour from the sLubsistence sector where the marginal productivity of labour is low & transfer it to the capitalistic sector where marginal productivity of labour is high.
• 5.
  Capitalisticsector • Lewis definedthis sector as "that part of the economy which uses reproducible capital and pays capitalists thereof". The use of capital is controlled by the capitalists, who hire the services of labor. It includes manufacturing, plantations, mines etc. The capitalist sector may be private or public. • OS is as before average subsistence earnings, and OW the capitalist wage. • WN1Q1 represents .. the surplus in the initial' stage. .”, Since some of this is • reinvested, the amount of fixed capital increases.
• 6.
  Hence the scheduleof the marginal productivity of labour is now raised throughout, to the level of N2Q2. Both the surplus and capitalist employment are now larger. Further reinvestment raises the schedule of the marginal productivity of labour to N3Q3. And the process continues so long as there is surplus supply of labour.
• 7.
  Capital formation throughbankcredit •Lewis is of the opinion that in less developed countries capital formation may be stimulated through bank credit as well. • Inflation generated by way of bank credit in the process of capital formation is self- liquidating.
• 8.
  End ofgrowth process •The process of growth comes to an end owing to several factors: • Increased demand for workers • When the pressure of population increases in subsistence sector.
• 9.
  criticism • Limited scope •Mobility of labour is not easy • Lack of skilled workers • Lack of entrepreneurs • Unequal distribution of wealth • Neglect of aggregate demand
• 10.
  Thank You