Lewis Model of Structural change.docx - Lewis Model of...

This preview shows page 1 - 3 out of 3 pages.

TP TP L AP MP AP,MP L Lewis Model of Structural change Assumptions 1. Economy has two sectors – agriculture and industry. There is diminishing returns in both sectors. 2. The industrial sector is characterized by traditional neoclassical assumptions, wages = value of marginal product of labor, no unemployment. 3. The agriculture sector is traditional with family enterprises where workers share the output. Rather than being paid according to their marginal product they are paid their average product. 4. There is disguised unemployment in the agriculture sector, i.e. workers are outwardly employed but there would be no loss of output if those workers were let go. Farms employ workers beyond the point where their marginal product is zero. Each worker is paid a subsistence wage.
S L MPL1 MPL2 MPL3 5. If workers are employed beyond the point where their marginal product is zero or less, those workers are “surplus labor”. They can be moved to other jobs without impacting agricultural output

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture