In the article Economic Development With Unlimited Supplies of Labour, Arthur Lewis introduced the concept of ‘unlimited supplies of labor.’ According to Kirkpatrick and Barrientos, Lewis developed an economic theory that uses unlimited supplies of labor to determine the rate of economic growth (681). The new concept acknowledged the presence of growth potentials in the capitalist sector and low wages in the subsistence sector because of an excessive supply of labor.
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In Lewis’ assumptions, an infinite supply would be achieved by creating a transition from the subsistence to the capitalist sector. According to Ranis, capitalist sectors use reproducible capitals to generate profits (13). The growth of capitalist sectors is influenced by low wages and high marginal productivity. However, the researcher argued that in case of a drop in labor supply, the deficit could be addressed by transferring workers from the subsistence to the capitalist sector.
According to Hosseini, Lewis argued that the flow of labor was expected to stabilize wages in the capitalist sector (134). Additionally, the researcher observed that the developing and underdeveloped countries had a surplus supply of labor because they had subsistence economies. Such countries created excellent opportunities for job cycles from the non-capitalist to industrial regions. In addition, the movement of workers to the productive sectors prevents wages from rising.
According to Cypher and Dietz, industrialization processes are influenced by labor and capital (272). Lewis’ concept of infinite supply of labor provides one of the essential requirements for industrialization. When workers move to the industrialized sectors, the wages remain unchanged because of an imbalance in supply and demand. However, more workers increase productivity in the capitalist sectors without increasing wage expenditure.
Industrialization is achieved when the supply of workers from the non-capitalist sectors surpasses demand at a constant wage rate. Investors in the industrial sector start creating bigger profit margins because of constant wage rate created by unemployment in the subsistence sector. In fact, the extras collected from constant wage rate are captured as profits. After an extended period of constant wage and labor transfer, the profits made by capitalist investors translate to similar growth of profits in national revenue. Governments and multinational investors can use the revenue for profitable and reproducible investments.
In developing and underdeveloped countries, unemployment is very high. However, the concept predicts industrial growth if capitalist sectors can initiate investment activities while relying on surplus labor and constant wage rate. According to Stock, Africa has not been utilizing its resources despite having excessive supply of labor because it has not been transferring workers to the capitalist sectors (295). However, globalization has allowed multinational investors to establish capitalist sectors, which have led to industrial growth in some African countries. Lewis’ theory evokes the need to perceive labor in infinite supply in order to achieve industrial and economic growth. The growth witnessed in capitalist sectors provides employment opportunities to subsistence workers without affecting wage range.
In fact, Kirkpatrick et al. argue that the Lewis model helps in explaining the process of structural industrial revolution (682). Although the concept predicted that wages would remain unchanged until equilibrium is achieved between the capitalist and subsistence sectors, it demonstrated how economic transformation could be achieved. Lewis’ theory concentrated on establishing a relationship between productive capitalist sectors and surplus labor supply from underdeveloped areas. When workers join industrialized sectors at constant wage rates, they create surpluses of output wage, which translates into high-profit margins.
Cypher, James, and James Dietz. The process of economic development. London, United Kingdom: Routledge, 2008. Print.
Hosseini, Hamid. “Arthur Lewis’ dualism, the literature of development economics, and the less developed Economies.” Review of European Studies 4.4 (2012): 132-140. Print.
Kirkpatrick, Colin and Armando Barrientos. “The Lewis model after 50 years.” The Manchester School 72.6 (2004): 679-690. Print.
Ranis, Gustav. Is dualism worth revisiting? New York, NY: Springer, 2006. Print.
Stock, Robert. Africa South of the Sahara: a geographical interpretation. New York, NY: Guilford Press, 2012. Print.