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Lewis Model and its relevance to Reverse Migration during COVID-19

Introduction

The article titled “Economic Development with Unlimited Supplies of Labour” by Nobel laureate W. Arthur Lewis published in The Manchester School in May 1954, is considered to be one of the most influential and essential contributions to the field of Development Economics. (Kirkpatrick & Barrientos, 2004). The Lewis Model as formulated by Arthur Lewis and later formalized and extended by John Fei and Gustav Ranis is one of the best know theoretical models of development that focused on structural transformation, a process of transforming the economy in such a way that the contribution of manufacturing sector to the national income eventually surpasses the contribution of the agricultural sector, of a primarily subsistence economy. (Todaro & Smith, 2003).

The COVID-19 pandemic, however, created a unique, one-time case of large-scale reverse migration. Migrant workers were left struggling for their livelihood as they were forced out of their jobs with the informal sector and many other industries taking severe hit due to multiple lockdowns and a general decline in the economy. The Lewis Model is extremely relevant and influential in understanding the workings of migration. This article aims to explain in detail the Arthur Lewis Model and its relevance to reverse migration as seen during the COVID-19 pandemic.

The Model

According to the model, as explained in the book Economic Development by Todaro and Smith, the underdeveloped economy consists of two sectors, i.e., a traditional, overpopulated, rural subsistence sector characterized by zero marginal labour productivity and a high-productivity modern, urban industrial sector into which labour from the subsistence sector is gradually transferred. Furthermore, by having a zero marginal labour productivity, Lewis classifies this as ‘surplus labour’ that can be withdrawn from the traditional agricultural sector without any loss of output. The model states that both labour transfer and modern sector employment growth are bought by output expansion in the sector which depends on the rate of industrial investment and capital accumulation in the modern sector.

Lewis states that in early stages of development, there is ample supply of labour in the subsistence economy, and hence, the supply to the capitalist sector will exceed demand at wage which can thus remain constant during a prolonged phase of labour transfer. This wage will be determined by the alternatives available to those entering capitalist employment, i.e., the standard of living in the subsistence sector. (Leeson, 1979). In other words, Lewis assumed that the level of wages in the urban industrial sector was constantly determined as a given premium over a fixed average subsistence level of wages in the traditional agricultural sector. The supply curve of rural labour to the modern sector at this constant urban wage is considered to be perfectly elastic (Todaro & Smith, 2003).

Migration and the Indian Economy and its connection with Lewis Model

The concept of Rural to Urban migration derives its historical precedence from the Lewis Model. Aggarwal and Singh in their paper titled ‘Reverse Migration: A State Potential’ state that rural to urban migration would be primarily driven by existence of surplus labour in rural areas along with the expanding opportunities of employment for such labour in urban areas, which is the key idea of the Lewis Model. In the expectation of higher urban earnings and wages, rural workers would migrate to urban areas, as the modern sector expanded (Aggarwal & Smith, 2020).

When considering the Indian economy, the wage differential was primarily the reason for migration during the Green Revolution. However, recent studies show that the wage differential in rural India in different regions and states has come down significantly (Das and Usami, 2017) and consequently the wage differential can no longer be considered the main driving force of migration from rural areas. Recent trends show that sectors that had claimed to be responsible for absorbing the surplus labour from the agricultural sector are already dismissing labour. A.N. Thakur in his paper ‘Economic implications of Reverse Migration in India’ stated that the ‘modern sector’ claimed by Lewis is “conspicuous by its absence from the scene when it comes to absorbing the surplus labour from the agricultural sector”. For example, there has been a sharp decline in employment in urban manufacturing and construction sectors. Moreover, studies and research show that an overwhelming proportion of these migrants work in the informal sector. This means that migration has largely remained ineffective in shifting the workforce from the informal to formal sectors or from agricultural to industry sectors. Hence it can be stated that migration in India can hardly be perceived as the source of structural transformation (Thakur, 2020).

Reverse Migration and Lewis Model

Considering that a vast proportion of migrants worked in the informal sector with almost no job security, adverse working conditions etc., COVID-19 pandemic and its consequent lockdowns created a unique situation where the informal sector was severely hit and the workers were removed from their jobs. Struggling for mere survival, these migrant workers were forced back to their rural villages, causing a massive case of reverse migration. The Census of 2011 states the number of total internal migration as 455.7 million, in which work-related migration was a little more than 45 million, including self-employed persons. The Economic Survey 2016–17, using railway records, puts the size of inter-state migration at higher than 60 million. (Thakur, 2020). Various state-level studies conclude that at least 35-40 million workers took to COVID-19 led reverse migration. Research by Amit Chatterjee and others hypothesized if reverse migration would lead to rural development or not. The research hypothesis of their paper titled “Will Covid-19 cause rural development? An analysis of the effects of Reverse Migration” was as follows:
Ho: Reverse migration will not lead to rural development.
H1: Reverse migration will lead to rural development.

According to these studies, the Lewis model failed to throw light on this scenario where reverse migration would take place in a pandemic-like situation of COVID-19. The authors claimed that Lewis model is a “one-sided theory” as it considers only the growth of the industrial sector and ignores the growth of the agricultural sector. Moreover, the model assumes the supply of labour to be higher than the corresponding demand for labour. However, in a situation like the outbreak of the COVID-19 pandemic, reverse migration of this surplus-labour would lead to a decrease in supply and increase in demand in urban areas.

Furthermore, Lewis assumed that as more and more labour is employed in the urban economy, their wage rate goes on decreasing to a point until the subsistence wage rate offered in the agricultural sector has been reached. However, as a result of COVID-19 pandemic and its induced reverse migration, the demand for labourers increased as not only do they not migrate to urban areas but migrate back to their villages in rural areas. As a result, the wage rate increases. This is contrary to the Lewis model. Amit Chatterjee and others thus claimed that due to this increased wage rate, the standard of living, and thus, the lifestyle of labour will improve in the urban areas. Their research further states that the “mutuality and dependency between the rural and urban strata will decrease due to reverse migration”. Researchers further claim that these reverse migrant workers will demand equal amenities and avenues in their respective villages consequently creating pressure on the government, and thus gradually leading to rural development. Amit Chatterjee concluded their paper by rejecting the null hypothesis. There is huge scope in this field to conduct further research and test this hypothesis. However, keeping in mind all the above-mentioned points, the pandemic is an exception to the Lewis model (Chatterjee et al, 2020).

Conclusion

The Lewis model is extremely quintessential and highly influential in the field of Development Economics. The model is still considered relevant to experiences in China and certain other countries, where labour has been steadily absorbed from farming into manufacturing. However, Arthur Lewis, did not take into account a unique situation like that of reverse migration as a result of COVID-19 pandemic. Many aspects of the model as discussed in the report could not accurately hold true in this situation and thus as a result it is safe to conclude, as also claimed by research conducted by (Chatterjee et al, 2020), that the pandemic and the consequent reverse migration situation is an exception to Lewis model.

Arnav SinhaSecond Year Student at Christ University

References

[1] Aggarwal, M., & Singh, S. (2020) Reverse Migration: A State Potential. International Journal, 1(3).[2] Chatterjee, A., Thappa, J. R., Kele, M., & Pendse, E. (2020). Will Covid-19 cause rural development? An analysis of the effects of reverse migration. Journal of Critical Reviews.[3] Das, A., & Usami, Y. (2017). Wage rates in rural India, 1998–99 to 2016–17. Review of Agrarian Studies, 7(2369-2020-2016).[4] Kirkpatrick, C., & Barrientos, A. (2004). The Lewis model after fifty years (No. 1650-2016-135987).[5] Leeson, P. F. (1979). The Lewis model and development theory. The Manchester School, 47(3), 196-210.[6] Thakur, A. (2020). Economic Implications of Reverse Migration in India. Journal of Migration Affairs Vol. III.[7] Todaro, M. P., & Smith, S. C. (2003). Economic Development, eight edition. England: Pearson Education Limited.getRandomImage(‘Lewis-Model’)
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