The Lewis Growth Model speaks of structural changes in the economy and is based on the use of an unlimited supply of labour.
The unlimited supply of labour is available due to subsistence wages of agricultural labour, casual labour, domestic servants, etc. and the continuous increase in the population.
In this model of economic development, Lewis states that capitalists attract surplus labour from the traditional sectors at a bit higher wages than the subsistence wage for economic development and to enhance profit.
How does Lewis Growth Model Work?
Lewis Growth Model works in terms of inter-sectoral relationships in a dual economy of capitalists and subsistence sectors.
For example, the agricultural sector has a huge amount of surplus labourers, and if these surplus workers are withdrawn, then the net output of the agricultural sector will not be affected.
Over a period of time, these surplus labourers are absorbed into the industrial sector and there is an expansion in both output and employment eventually leading to economic growth.