Lewis proposed that less developed countries could stimulate growth by exploiting their unlimited supplies of labor. His model assumes these countries have high populations engaged in subsistence work, making labor perfectly elastic at that wage. The economies are dual, with a subsistence sector employing most workers at low productivity and a capitalist sector using capital. Growth occurs as labor moves from subsistence to capitalist sectors, increasing output and allowing reinvestment which further raises productivity and employment in a self-sustaining cycle until labor pressures subside. Bank credit can also aid capital formation though inflation is self-correcting. Critics argue the model overlooks demand factors and difficulties transitioning large agricultural populations.

1. LEWISTHEORYOF
UNMLIMITEDSUPPLY
OFLABOUR

2. LEWIS MODEL
• The model 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 of the 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 developed countries 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 defined this 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 schedule of 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