Structural Transformation with Surplus Labour in Indian Economy (2000–2025): Form the Perspective of Lewis’ Labour Supply Model

DOI- https://doi.org/10.5281/zenodo.21225791

Abstract

        The concept of dual-sector model, originally developed in 1954 with the noble winning theory “Unlimited Supply of Labour”, which assumes that developing economies have unlimited amounts of labour in their agriculture and that labour can be moved from the agriclutre sector to the industrial sector at a subsistence wage without reducing agricultural output. This paper systematically revisits the Lewis framework in the context of the Indian economy from 2000 to 2025 using micro level data from the Periodic Labour Force Survey (PLFS), data from the National Sample Survey Organisation (NSSO) and data from the Decennial Census data (2001, 2011) and macro level data from the World Bank's World Development Indicators (WDI).                The study employs the panel data for the question if India has reached or passed the Lewis Turning Point (LTP) that occurs when surplus labor in agriculture sector is completely eliminated and wages in this sector start converging with the modern sector wages. The results show a highly heterogeneous picture, with some Indian states -- in particular, Punjab, Haryana, and certain parts of southern India -- showing a degree of wage convergence that is consistent with the Lewis Turning Point, but the majority states still remaining with high levels of disguised unemployment. The paper also illustrates how India's unique services-led pattern of growth has, in fundamental ways, undermined the Lewis model's assumption of an inevitable split between the informal and formal sectors, leading to a 'partial transformation' shape of the employment distribution in the country.

Keywords: Lewis Model, Surplus Labour, Structural Transformation, Indian Economy, Lewis Turning Point