Lewis turning point

The Lewis turning point, named after economist W. Arthur Lewis, is a term used in economic development to describe a point at which surplus rural labor reaches a financial zero. This in turn typically causes urban wages to rise dramatically. Upon reaching the Lewis turning point, a country or state usually experiences a labor shortage which leads to a rise in agricultural and unskilled industrial real wage. This usually continues until a labor surplus can be reached once again. Typically, reaching the Lewis turning point also causes an improvement in the wage bill and the functional distribution favoring labor.[1] However, in some historical cases such as in Japan between 1870 and 1920, agricultural labor productivity increased significantly to produce a labor surplus while real wages only rose gently.[1]

After the Lewis turning point is reached, balanced growth policies are expected to be added shortly afterwards.[1] According to a study by Zhang and Yang, China has reached the Lewis turning point by 2010, and cheap labor in the country has rapidly declined and real agricultural wages have substantially increased.[2] However, other journals such as the China Economic Review claim that the Lewis turning point was not yet passed in China and that this was comparable to the Japanese historical experience in regard to how the Lewis turning point affected the economy.[3] Despite its large population, in the early 2010s China has faced labor shortages and real wages have nearly doubled since 2003, such rapidly rising wages in regard to unskilled work is a key indicator that a country has reached the Lewis turning point.[4] A 2013 working paper by the International Monetary Fund predicts the Lewis turning point in China to “emerge between 2020 and 2025.”[5] Piazza argues that a fast-growing economy that reaches the Lewis turning point can experience financial turmoil and a persistent downshift in growth prospects.[6]

Lewis curve and automation

In their book Tshilidzi Marwala and Evan Hurwitz[7] used Arthur Lewis theory to understand the transition of the economy into the fourth industrial revolution where much of the production in the economy is automated by artificial intelligent machines. In this regard, they identified an equilibrium point, i.e. Lewis turning point, where moving human labor to automated machines does not result with additional economic benefit.

See also

References

  1. 1 2 3 Ranis, Gustav (August 2004). "Arthur Lewis' contribution to development thinking and policy" (PDF). www.yale.edu. Yale University. Retrieved 15 January 2015.
  2. ↑ Dammon Loyalka, Michelle. "Chinese Labor, Cheap No More". The New York Times. Retrieved 16 January 2015.
  3. ↑ Minami, Ryoshin; Ma, Xinxin (23 September 2010). "The Lewis turning point of Chinese economy: Comparison with Japanese experience". China Economic Journal. 3 (2): 163–179. doi:10.1080/17538963.2010.511912.
  4. ↑ Zhang, Xiaobo; Yang, Jin; Wang, Shenglin (December 2011). "China has reached the Lewis turning point". China Economic Review. 22 (4): 542–554. doi:10.1016/j.chieco.2011.07.002.
  5. ↑ Das, Mitali; N'Diaye, Papa M. (2013). "Chronicle of a Decline Foretold: Has China Reached the Lewis Turning Point?" (PDF). IMF Working Paper No. 13/26.
  6. ↑ Piazza, Roberto (October 2014). "Growth and crisis, unavoidable connection?". Review of Economic Dynamics. 17 (4): 677–706. doi:10.1016/j.red.2014.02.003.
  7. ↑ Marwala, Tshilidzi; Hurwitz, Evan (2017). Artificial Intelligence and Economic Theory: Skynet in the Market. London: Springer. ISBN 978-3-319-66104-9.
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