Lewis Turning Points

The 'labor migration' and 'increase of output and employment in the modern sector' are central to Lewis' development theory. Here we will study Lewis turning point and 

What is the Lewis turning point?

A circumstance in economic development known as the Lewis turning point occurs when surplus rural labor is fully absorbed into the manufacturing sector. It is based on a development model developed by Nobel laureate economist Arthur Lewis, who looked at both sides of a growing economy. Systematic sampling is  a good option for collecting data.

The first is its agricultural industry, which employs a large portion of the workforce, and the second is its modern market-oriented sector, which is mainly involved in industrial output. The modern industry propels the economy forward, aided by an endless labour supply, primarily derived from the agricultural sector. 

This migratory labor group takes low wages to keep up with farming's living standards. The contemporary sector (also known as the capitalist sector) can make profits and save money because of low labor expenses. Savings are increasing, which helps to fund capital formation for expansion. Read about rational choice theory.

However, there comes a moment when the underdeveloped or agricultural sector can no longer supply labor, and wages begin to rise. The Lewis turning point is named after this.

Lewis first and second turning points

To understand these turning points, we needed first to understand the economic model.

There are two sectors in Lewis's simple dual economy model: the agricultural sector in rural areas and the industrial sector in urban regions. Labor in the agricultural industry is plentiful and has marginal productivity of zero or extremely low. This is where the industry can found surplus labor. The marginal product of labor in the industrial sector is positive.

A laborer is classified as Type I (absolute) Surplus Labor if his or her MPL (marginal product) is equal to or less than zero. Pestle analysis is good option to know about the status of any company.

If the MPL is larger than zero but less than the actual wage received, the labor is classified as Type II (relative) Surplus Labor.

There are three stages to labor:

1. Stage I occurs when type I (absolute) surplus labor exists.
2. Stage II occurs when type II (relative) surplus labor exists.
3. Stage III appears when there no extra labor.

The two turning moments is stated after defining two types of surplus labor and three stages of labor transfer:

1. When type I (absolute) surplus labor is expended, a Lewis Turning Point I occurs.
2. When type II (relative) surplus labor is expended, a Lewis Turning Point II occurs.

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Lewis turning point China

Due to the inexpensive labor it receives from its extensive rural hinterland, which is still a traditional, or subsistence, economy, China has continued to thrive for the past three decades. The demographic structure is changing due to different administrative actions implemented by the government, such as the one-child policy, and the amount of excess labor is also diminishing. You should know about break even point as well.

In the last two years, China has also witnessed labor strikes, shortages, and wage hikes, prompting many experts to question whether the Lewis turning point has been achieved.

Here are some of the causes why China nearing the Lewis Turning Point should worry us all:

• According to predictions by Cai Fang, vice-president of the Chinese Academy of Social Sciences, which advises the government, China's GDP growth will decelerate to 6.1 % per year from 2016 to 2020, down from 9.8 % per year from 1995 to 2009. 
• The main cause of this drop is a diminishing labor force. And these are just the official growth estimates. However, as opposed to the very erratic official figures, real GDP growth could be far lower.
• One component of China's diminishing labor force is the declining flow of migrants. However, the slowing in urbanization occurs while the population is rapidly ageing, which is another significant factor behind the Lewis Turning Point.
• Between 1980 and 2014, China's one-child policy resulted in a "demographic dividend" for the economy. That dividend has now become a deficit. In 2013, the number of Chinese aged 15 to 64 reached an all-time high. You can get polytheistic assignment help.
• In 2011, the dependency ratio — the proportion of children and the elderly to working-age Chinese — began to rise. Although they implemented the one-child limit in 1979, the birth rate continued to rise into the 1980s. Annual births in China peaked at 25 million in 1987 and have slowly declined since then, reaching around 20 million in 1997 and 16 million last year.

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Impact of china's LTP on the worldwide economy

The global economic community is keenly interested in China's financial performance and its transition from a developing to a medium to a high-income country. China's future development will have far-reaching consequences worldwide. With the labor surplus that has fueled record growth dwindling, growth is anticipated to decline. The LTP, which could be the tipping point, might have far-reaching implications.

A regression analysis of the association between the share of traditional labor and real provincial GDP found that the ratio is declining at an accelerated rate across all provinces, implying that the slowdown leading to the LTP has yet to materialize. When province data is reviewed on a regional level, it is discovered that the coastal provinces, which are substantially more developed than the central and western provinces, have easily passed the LTP and moved over the middle-income band. This shows that they can avoid the middle-income trap in China. Cultural capital assignment help service also offered by Myassignmenthelp.com.

On the bottom line…

The LTP had not yet been passed by China, according to most of the academic literature. However, based on the findings of this article, we may deduce that the provinces that have yet to reach the LTP - especially in the middle and western areas - have concealed the achievement of the coastal region, which is substantially higher than the recognized threshold.