Lewis’s Theory of Unlimited Supplied of Labour (Criticism)

Read this article to learn about Lewis’s Theory of Unlimited Supplied of Labour and it’s criticism!

Though Lewis model has provided a deep and perceptive analysis of the various problems of underdeveloped countries yet it is not free from criticism.

This model is criticized on theoretical and practical grounds on the basis of following points:

1. Unrealistic Assumption:

The theory assumes a constant wage rate in the capitalist sector until the supply of labour is exhausted from subsistence sector. This seems to be unrealistic because the wage rate continuously rises over time in the industrial sector of an underdeveloped economy.

The assumption of unlimited labour supply in underdeveloped countries is not much relevant as it is not applicable to the countries like South America and South Africa. To some extent, it is applicable to Asian countries. The surplus labour exist in rural areas where as there is full employment in urban sector. Even this assumption is at variance with reality.

2. Limited Supply of Skilled Labour:

Another limitation of this model is that if we assume unlimited supply of unskilled labour, then, the supply of skilled labour is definitely limited in underdeveloped countries. This will create difficulties in carrying out programmes of industrialization and economic development. Prof. Lewis admits himself that limited supply of skilled labour is only a temporary bottleneck which can be removed by providing facilities for training labour. But the fact is that the problems of skill formation are not easily overcome especially in backward and underdeveloped economies.

3. One Sided Theory:

Prof. Lewis does not consider the possibility of progress in agricultural sector, thus, it is one sided theory. As the industrial sector develops with the transfer of surplus labour, the demand for food and raw materials will rise, which will, in turn, lead to growth in agricultural sector.

4. Lack of Entrepreneurs:

Lewis theory of unlimited supply of labour is based on the assumption that a capitalist class exists in underdeveloped countries. The entire process of growth depends upon the resistance of such a class which has necessary skill to accumulate capital. In underdeveloped countries, a rising level of profits does not necessarily induce a rising level of reinvestment. It may encourage speculative activities i.e. a large number of existing entrepreneurs may turn to speculators to reap extra gains from the emerging shortage in the economy.

5. Neglects of Aggregate Demand:

Lewis neglects the problem of aggregate demand. He thinks that whatever is produced in capitalist sector, is consumed by itself or is exported. He fails to consider the demand for products of capitalist sector by the subsistence sector. If there is shortage of demand for the products of capitalist sector, the growth process may come to halt.

6. Unequal distribution of Income:

This model is criticized on the ground that it perpetuates unequal distribution of income. The migration of rural population to urban sector, the supply of labour increases and the competition among the job seekers pushes the wages down which results in widening the income gap. Prof. Meier and Baldwin have expressed the view that unequal distribution of income does not contribute as much to the productive investment as might be expected. Hence, it is generally observed that high income groups dissipate their savings on unproductive things like precious articles, real estates etc.

7. Migration is not Easy Task:

The migration of labour force from subsistence to capitalist sector is not so easy as is pointed out in the Lewis model. It has been observed that of all the commodities, labour is difficult to transport. The labourers have so deep affection for land and homes that they can’t think of leaving them. Therefore, in under developed countries, there are socio-cultural barriers to occupational and geographical mobility which hinder the migration of the workers.

8. Savings are not done by Capitalist Sector Alone:

It is not true to say that bulk of saving is done by the capitalist sector alone in LDC. Lewis himself admits this particularly in case of Japan where bulk of saving is done by the low income groups. Low income groups save in order to make their future secure and high income groups spend more because of influence of demonstration effect.

9. Marginal productivity of Labour is not Zero:

Prof. Shcultz does not agree that the marginal productivity of labour in over-populated underdeveloped countries is zero or negligible. If it were so, the subsistence wage would be zero. The fact is that every worker receives the subsistence wage in the form of cash, so, it is difficult to find out the exact number of surplus labourers who are to move to the capitalist sector and these are hardly 5 percent.

10. Mobility of Labour not Easy:

Higher capitalist wage will not lead to the movement of surplus labour from subsistence sector to capitalist sector, people are so intensely attached to their family and land and they do not want to leave their kith and kin. The differences in languages and customs the problems of congestion, housing and high cost of living in the capitalist sector stand in the way of mobility of labour of this sector.

11. Multiplier process does not operate in LDC:

This model assumes that capital accumulation takes place when the capitalist class reinvest profits. It pre-supposes the operation of investment multiplier which is not applicable for UDC. If the profits are reduced or price of wage goods rises, the process of capital formation will stop before all the surplus labour is absorbed.

12. Adoption of Capital Intensive Techniques:

It is observed that the rate of labour absorption depends upon reinvest able surplus. But in most underdeveloped countries, capitalists are under no compulsion to adopt labour intensive techniques. Hence, they try to adopt capital intensive techniques, the productivity per capita may increase and consequently marginal productivity curve may shift, but such shift has no favourable effect on level of employment. Even in LDC the landlords try to introduce technical progress by mechanization of agriculture. The policy in both agriculture and industry is caused by labour displacement rather than labour absorption.

13. Leakage in Growth Process:

Dr. A.M. Khusro opines that this model is not applicable to be industrialization of underdeveloped countries, as it requires exploitation of saving potential inherent in the disguised unemployment. There are several leakages in the process which fail to convert disguised unemployment into saving potential.

(i) Price Insensitivity of farmers.

(ii) Decline in the marketed surplus when the terms of trade move in favour of agriculture and manifestation of backward sloping curve of agricultural products.

(iii) The supplies to non-agricultural sector may not increase due to increase in hoarding propensity of farmers, wholesale and retail dealers.

These leakages hinder the operation of multiplier in UDC with the fact that expansion process fails to become a development stimulant.

14. Inflation is not Self Destructive:

Prof. Lewis presumes that inflation for the purpose of development is self destructive but this assumption does not hold good in the contest of developing economies which are characterized by market imperfection, inelastic supply of working capital, limited productive capacity and high propensity to consume.

Inflation is not self destructive rather it is self cumulative. It is a phenomenon which is influenced not by domestic factor alone. It is influenced by external factors over which governments have little or no control. Inflation creates more problems than it solves.

15. Productivity falls with Migration of Labour:

Prof. Lewis assumes that when surplus labour is withdrawn from subsistence sector to capitalist sector, the agricultural production remains unaffected in the subsistence sector. But the with-drawl of workers from the farms will reduce output. According to Prof. Schutlz, “there is no evidence for any poor country anywhere that would suggest that a transfer of even some fraction say 5 percent of existing labour force out of agriculture, with other things remaining equal, could be made without reducing its production”. Prof. Higgins is of the opinion, “It is not possible to transfer a large number of workers permanently and for full time from peasant agriculture to industry without a drop in agricultural production”.

16. Inefficient Tax Administration:

Prof. Lewis’s argument that taxation will mop up increasing income, cannot be accepted because that tax administration in underdeveloped countries is not so efficient and developed. Thus, it hinders the proper operation for capital accumulation especially in these countries.