Lewis Dual-Sector Model
What is Lewis Dual-Sector Model?
The Lewis dual-sector model explains development as the transfer of surplus, low-productivity labor from a traditional agricultural sector to a modern industrial sector.
Arthur Lewis assumed agriculture holds 'surplus labor' whose marginal product is near zero, so workers can move to industry without reducing farm output. Industry pays a roughly constant wage (just above the subsistence/agricultural wage) and earns profits that are reinvested, expanding the modern sector and absorbing more labor. Development continues until the surplus is exhausted at the 'Lewis turning point', after which wages start rising.
Lewis Dual-Sector Model: a worked example
Terraza's farms employ 1,000 people and grow 500 tonnes of grain. Move 200 of them to city workshops and the harvest is still 500 tonnes, because the last farmhands were adding almost nothing. Farming paid $300 a year, so workshops offer $390, a fixed margin above it. Each industrial worker produces $900 of output, leaving $900 - $390 = $510 of profit per worker, or 200 x $510 = $102,000 in total. Reinvested at $3,400 of equipment per new job, that funds $102,000 / $3,400 = 30 more hires next round, with the food supply untouched. The loop repeats while the surplus lasts.
The mistake students make with lewis dual-sector model
Readers take zero marginal product as a claim that farming is unproductive, or that workers can keep leaving without the harvest suffering. Neither follows. The assumption covers the surplus only, and only up to the Lewis turning point; past it every departure does cut output, food prices rise, the industrial wage has to rise with them, and the $510 margin funding reinvestment gets squeezed. The flat wage line in the diagram invites the error, since nothing on the page shows where it stops being flat.
Lewis Dual-Sector Model questions
What is the Lewis turning point?
The Lewis turning point is the moment a developing economy runs out of surplus farm labor, so pulling another worker into industry finally reduces agricultural output. Before it, industry hires all the labor it wants at a flat wage just above the farm wage. After it, the labor supply curve facing industry slopes upward, real wages start climbing, profit margins narrow, and growth must come from productivity rather than from moving bodies between sectors.
What are the assumptions of the Lewis dual-sector model?
The Lewis dual-sector model assumes an economy split in two: a traditional sector holding surplus labor whose marginal product is near zero, and a modern sector that hires at a fixed wage set slightly above the traditional one. It further assumes capitalists reinvest their profits at home, that reinvestment creates jobs roughly in proportion to capital, and that migrants find work rather than joining an urban jobless pool.
What are the criticisms of the Lewis model?
Critics of the Lewis model attack three links in its chain. Rural marginal product may not be zero, especially where farm work is seasonal and peak-season labor is tight. Profits may be sent abroad or spent on machinery that adds output without adding jobs, breaking the reinvestment loop. And migrants may arrive faster than jobs appear, producing urban unemployment, the gap the Harris-Todaro model was built to fill.
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