Lewis turning point
Topic: Economic Growth Theories and Business Cycles · NCERT: Beyond NCERT
Meaning
In the Lewis model (1954), a modern industrial sector grows by taking in surplus workers from farming at a constant, low wage. Surplus labour means workers whose marginal product is close to zero, so removing them hardly lowers farm output. The Lewis turning point is reached when this surplus labour runs out. Industry must then bid workers away from agriculture, so wages start rising rapidly. The turning point signals the end of the cheap-labour phase of growth.
Example
Japan reached its turning point in the 1960s. For China, economists debate whether it came around 2010, when coastal wages rose. India is still far from it. In 2022, 43% of Indian workers were in agriculture but produced only 18% of GVA.
Don't confuse with
- A fall in wages: wages do not fall at the Lewis turning point. They rise. This is a common exam trap.