Lewis ModelLewis Dual Structure Model Diagram

Lewis developed a "classical" model of a dual economy in his famous paper "Economic Development under Wireless Labor Supply". The Lewis model divides the economy of a developing country into two sectors: a non-capitalist sector that produces by traditional methods with very low labor productivity, and a capitalist sector that produces by modern methods with high labor productivity and wages. The former is represented by the traditional agricultural sector and the latter by the modern industrial sector. According to Lewis, economic development depends on the continuous expansion of the modern industrial sector, which requires the agricultural sector to provide an abundance of cheap labor. The process of labor transfer in the Lewis model is shown in Fig.

D D3D2D1L1

L2 L3 L

In the figure, the horizontal axis OL represents labor, and the vertical axis OD represents the marginal product of labor and the wage.OA represents subsistence incomes in the traditional agricultural sector, and OW represents the prevailing level of wages in the modern industrial sector. At this wage level, which is slightly above rural subsistence income, the supply of labor in the modern industrial sector is infinite, i.e., the supply of labor in the industrial sector is perfectly elastic. Thus, the labor supply curve WS is a horizontal line parallel to the horizontal axis.

Lewis assumed that the industrial sector uses only two factors, capital (denoted by K) and labor (denoted by L), and that capital (K) is scarce while labor (L) is abundant. According to the

law of variable proportions in Western economics, for a fixed amount of capital, there is a specific marginal productivity curve for labor [to which the labor demand curve D(K) corresponds]. In the figure, the modern industrial sector is assumed to have an initial amount of capital of K1, whereupon the corresponding labor productivity curve is D1(K1). As capital accumulation increases, the labor productivity curve will shift to the right to, D3 (K3) and so on.

According to Lewis, the modern industrial sector aims at profit maximization, and the condition for profit maximization is that the marginal productivity of labor equals the wage level. So the modern industrial sector, driven by profit maximization, corresponds to a certain capital input, and the amount of labor it requires is the intersection of the marginal productivity of labor curve and the wage curve of the modern industrial sector. For the sake of simplicity of analysis, suppose that the capitalist spends all his profits on investment, thus absorbing more and more agricultural labor, and as the labor productivity curve shifts from D1 (K1) to D2 (K2), D3 (K3), the number of laborers needed also increases from L1 to L2, L3, until all the surplus labor in the agricultural sector is absorbed by the industrial sector. When the surplus labor in the agricultural sector disappears, the marginal productivity of labor in agriculture increases, at which point the industrial sector has to raise the wage level in order to get more agricultural labor, and the labor supply curve begins to rise (as shown by the dotted line SS').

The main idea of Lewis's theory is that the transfer of labor is determined by the marginal labor productivity, and the increase in productivity is accompanied by the growth of industrial profits and the growth of capital, which causes the expansion of the industrial sector and the transfer of surplus labor in agriculture, and as long as the marginal labor productivity in agriculture is lower than that in industry, the transfer is bound to continue.

Lewis's dual structure economic theory only starts from the expansion of the industrial sector, and the purpose of the transfer is to provide enough labor for the expansion of capitalist industrialization, and does not specifically

analyze the development of agriculture, and ignores the fact that the development of agriculture and scientific and technological progress are equally important for industrial development. Lewis's theory of dual economic structure only serves the economic development of the western developed countries, and there is a big gap between the assumed conditions of the theory and the current system and economic reality of our country. Firstly, Lewis's labor transfer process abstracts away barriers outside the economy, while the transfer of labor to the urban industrial sector in China is subject to layers of institutional and systemic barriers. Second, Lewis believes that there is no career in the city and that the industrial and agricultural labor force does not constitute competition, whereas there are now a large number of laid-off workers awaiting employment in China. Also, Lewis did not take into account the gap between the quality level of labor in the industrial and agricultural sectors, which is obviously very different from the reality in China. Although the theoretical assumptions and China's real conditions are not fully consistent, but emphasizes the expansion of China's industrialization and a large number of agricultural surplus labor force transfer to the interaction between the undoubtedly has practical significance. At the same time, Lewis binary theory explains the necessity and general law of labor transfer, that is, the transfer is from the agricultural sector with low labor productivity to the industrial sector with high labor productivity.