Courses : Intermediate Macroeconomics Lecturer : Frischa Adellia Semester : 4th Semester, 2022/2023 Sesion Lewis Growth Model The Lewis growth model is an economic theory developed by British economist Arthur Lewis in 1954. This theory aims to explain the process of transformation from the agricultural sector to the industrial sector in developing countries. This model is based on the assumption that developing countries have abundant natural resources, but their agricultural sector is underdeveloped and the industrial sector is still underdeveloped. According to this model, the agricultural sector initially had an excess of labour, resulting in very low wages. This is caused by low productivity in the agricultural sector and the level of technology that is still limited. On the other hand, the industrial sector initially had a small workforce and high wages, due to high productivity and the use of more sophisticated technology. However, with an excess of labor in the agricultural sector, the industrial sector can take advantage of this labor by providing higher wages compared to wages received in the agricultural sector. This will encourage labor migration from the agricultural sector to the industrial sector, so that the industrial sector can grow faster. The growth of the industrial sector will then create a domino effect, in which the industrial sector will continue to grow and gain profits, so that it can absorb more workers. As a result, wages in the industrial sector will decrease, while wages in the agricultural sector will increase. This model calls this phase the "surplus labor" phase. However, when the workforce in the agricultural sector decreases, productivity in that sector will increase and wages will fall again. Conversely, in the industrial sector, a shortage of labor will cause wages to rise. This model calls this phase the "dwindling labor" phase or a reduction in the workforce. The Lewis growth model provides an overview of the process of economic transformation in developing countries. Although this model is quite simple, it provides a solid foundation for understanding the transformation of the agricultural and industrial sectors. In practice, this model is still used in economic development planning in developing countries. The Lewis Growth Model is a theory that was first proposed by a British economist named Sir Arthur Lewis in 1954. This model explains how a country develops and grows into an industrial country from a country that has an agrarian economic sector. Basically, the Lewis growth model assumes that there are two sectors in a country, namely the formal (modern) sector and the informal (traditional) sector. The formal sector consists of sophisticated, modern and advanced industries, while the informal sector consists of the simple and traditional agricultural and rural sectors. According to this theory, a country will start its formal sector development when the price of labor in the informal sector rises. This is due to population growth which has resulted in increasingly fierce labor competition in the informal sector. In this situation, companies in the formal sector will benefit more by hiring workers from the informal sector at lower wages. The Lewis Growth Model explains that at first, the formal sector was still small and unable to absorb all of the workforce in the informal sector. Therefore, when the formal sector begins to develop, workers in the informal sector can still be absorbed into the formal sector. However, when the formal sector has developed and absorbed all the workers in the informal sector, wages in the informal sector will rise and it will be difficult for companies in the formal sector to make a profit. In this phase, the Lewis growth model assumes that the formal sector must continue to develop technology and increase productivity to be able to compete with other countries in the world. In this case, the government is considered to have an important role in providing the support and facilities needed by the formal sector so that it can continue to develop and become more advanced. In general, the Lewis growth model provides an overview of how a country can develop and grow from an agrarian economic sector to an industrial country. However, this model has also received criticism for ignoring social and environmental aspects in the development process. In addition, there are also criticisms about the unfair distribution of income that occurs in the formal and informal sectors in the development process. The Lewis growth model is a model that describes the process of moving workers from the less productive agricultural sector to the more productive industrial sector. This model was developed by W. Arthur Lewis, an economist from Saint Lucia, and described in his book entitled "Economic Development with Unlimited Supplies of Labor" (1954). According to this model, economic growth occurs in two stages. The first stage is called the subsistence stage, where most of the workforce is absorbed in the agricultural sector and is only able to produce enough agricultural products to meet their own needs. At this stage, labor productivity is low and wages are relatively cheap. The second stage is called the growth stage, where there is a transfer of labor from the agricultural sector to the industrial sector. This movement of labor is caused by an excess of labor in the agricultural sector due to low productivity. In the industrial sector, there are technological advancements that have enabled higher labor productivity. Thus, the industrial sector is able to produce products at lower prices than agricultural products. This will drive demand for industrial products and increase productivity in the sector. In this stage of growth, labor wages in the industrial sector increase, along with productivity increases. However, wages in the agricultural sector remain relatively low due to low productivity. This model concludes that economic growth can be achieved through the movement of labor from the less productive agricultural sector to the more productive industrial sector.