A Critical Look at Lewsi Smith's Dual Sector Model

Topics: Industry, Developing country, Economics Pages: 4 (1175 words) Published: January 10, 2013
The dual sector model, commonly known as the Lewis model (after its originator Sir William Arthur Lewis, winner of the Nobel Memorial Prize in Economics in 1979) is a model that seeks to explain the growth of a developing economy in terms of a labor transition between two sectors; the capitalist sector and the subsistence sector. The model employs certain assumptions that will ensure the manifestation of the model. First and foremost is the assumption that a developing economy has a surplus of unproductive labor in the agricultural sector. The model assumes that for the model to be practical in a developing economy there has to be a substantial amount of surplus unproductive labor in the agricultural sector (which is used to describe the subsistence sector). Secondly, the workers (surplus unproductive labor) are attracted to the growing manufacturing sector where higher wages are offered. This assumption depicts a natural human desire to seek self-improvement with respect to welfare and as such the attraction to the higher wages being offered by the manufacturing sector. Also, the model assumes that the wages in the manufacturing sector are more or less fixed. This seeks to explain the fact that since the required minimum wage levels in the subsistence sector serve as a foundation for the wage levels in the capitalist sector (manufacturing sector). Since the wage levels in the manufacturing sector enjoys a level of stability. Also, the model assumes that entrepreneurs in the manufacturing sector make profit because they charge a price above the fixed wage rates (of its employed labor). Also, the model assumes that profits gained by entrepreneurs (in the previous assumption) will be reinvested in the business in the form of fixed capital. He finally assumes that an advanced manufacturing sector will mean an economy has moved from a traditional to an industrialized one. W.A Lewis’ division of the economy of an underdeveloped country into 2 sectors was: The...
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