The authors aim to point out the theoretical significance this theory; hold in respect to development in the new world of free market and globalization. The third and final section of the paper will consist of shortcoming of the Lewis model. The authors will point out with the use of other theories and empirical evidence where the Lewis model fell down and why some of his assumptions cannot hold up in today's society and finally the authors will make their conclusions on the theory's overall validity and application.
AN OVERVIEW: THE LEWIS MODEL OF DEVELOPMENT.
The important feature of the Lewis model is that the economy consists of two sectors; an agricultural, rural or subsistence sector and an industrial, urban or capitalist sector. In the subsistence sector, population is so large relative to products and natural resources that the marginal productivity of labor in the subsistence sector is very low or zero. This is to say that there is 'disguised unemployment' or underemployment, which is a potential reservoir of labor supply to the capitalist sector. These labors could be reduced without decreasing output; although in the model, there are other factors for an affluent supply of labor (these are: huge population growth due to low mortality and high birth rate, the daughters and wives released from domestic work, and workers from various kinds of casual jobs and the unemployment generated by increasing efficiency). Therefore, labor supply exceeds demand. Then, the labor market is in favor of capitalists, where. the capitalists can keep the wage constant (in the short run). Lewis assumes that the supply of labor is 'unlimited' on the grounds that the capitalist can have a good supply of labor at the same wage. The level of wages in the capitalist sector is determined by that in the subsistence sector; because, if the wage in the capitalist sector is less than the consumption in the subsistence sector, no peasant leaves their land to seek a job in the capitalist sector.
