The economic rise of China and India provides a unique opportunity to compare the role of internal labour flows in the development of two nations with agricultural populations of unprecedented scale. This paper puts forward a comparison of the formal institutional arrangements of China‟s huji institution and the arrangements that shape labour migration and segmentation in India. It finds that contrary to arguments in favour of the end of development models, in China formal institutional arrangements continue to shape the development process and act as intervening variables distorting the push-pull and transition forces outlined by economic models of migration such as the Lewis Transition whilst in India this process remains predominantly informal. It concludes that formal institutional arrangements shape labour migration and therefore constitute an important feature of each nation‟s development model but that these arrangements also differ suggesting a partial explanation for China and India‟s divergent economic trajectories.

We employ the Lewis-Ranis-Fei theory of dualistic economic development as a framework to investigate China’s rapid growth over 1965-2002. We find that China’s economic growth is mainly attributable to the development of the non-agricultural (industrial and service) sector, driven by rapid labour migration and capital accumulation. Our estimates of the sectoral marginal productivity of labour indicate that China’s 1978 Economic Reform coincided with moving from phase one to phase two growth, as defined in the Lewis-Ranis-Fei model. This implies that phase three growth could be achieved by the commercialisation of the Chinese agricultural labour market.

The paper examines the contentious issue of the extent of surplus labour that remains in China. China was an extreme example of a surplus labour economy, but the rapid economic growth during the period of economic reform requires a reassessment of whether the second stage of the Lewis model has been reached or is imminent. The literature is inconclusive. On the one hand, there are reports of migrant labour scarcity and rising migrant wages; on the other hand, estimates suggest that a considerable pool of relatively unskilled labour is still available in the rural sector. Yet the answer has far-reaching developmental and distributional implications. After reviewing the literature, the paper uses the 2002 and 2007 national household surveys of the Chinese Academy of Social Sciences to analyse and explain migrant wage behaviour, to predict the determinants of migration, and to examine the size and nature of the pool of potential rural-urban migrants. An attempt is also made to project the rural and urban labour force and migration forward to 2020, on the basis of the 2005 one per cent Population Survey. The paper concludes that for institutional reasons both phenomena are likely to coexist at present and for some time in the future.

We apply a computable general equilibrium framework to assess likely impacts of the Lewis Turning Point on China and the rest of the world. Modeling results suggest that China will probably transition from an abnormal economy to a normal economy with somewhat lower growth but higher inflation, which requires significant revision to the macroeconomic policy framework. China would lose competitiveness in labor-intensive activities, its current account surplus should fall but overinvestment risk could rise. These changes in China should help improve other countries' current accounts and boost low-cost countries' production. The Lewis Turning Point, however, does not provide automatic solutions to some of the key challenges, such as service sector development and innovation capability. China will need to make serious policy efforts to avoid the so-called 'middle income trap'.

With the aid of an analytical framework of the Lewis model revised to reflect the experience of China, this paper examines the country’s dualistic economic development and its unique characteristics. The paper outlines the major effects of China’s growth as achieved during the course of economic reform and the opening-up of the country: the exploitation of the demographic dividend, the realization of comparative advantage, the improvement of total factor productivity, and participation in economic globalization. By predicting the long-term relationship between the labour force demand and supply, the paper reviews the approaching turning point in China’s economic development and examines a host of challenges facing the country in sustaining growth

It has been widely recognized that China has had a large pool of surplus labour. However, despite its significant implications for wage levels and the Chinese economy, the current debates yield conflicting results as to whether the Lewis turning point has been reached. This paper clarifies a theoretical issue about the mechanisms of surplus labour absorption, subsequently indentifies two Lewis turning points, and examines the factors that affect the reaching of these two Lewis turning points. It then applies the framework to China to study the labour absorption process and examines the implications of the removal of the Hukou system in terms of welfare and economic performance.

This paper examines China’s industrialization in the light of the Lewis growth model. It begins with a perusal of Lewis’ own writings and those of Fei and Ranis in order to clarify certain assumptions and predictions of the Lewis model. The paper then reviews previous applications of the Lewis model in studying industrialization in other countries, and notes the methodological problems that arise in this regard. In applying the Lewis model to study China’s industrialization, the paper focuses on the dynamic relationship between wage and marginal product of labor in the traditional sector. For this purpose, the paper estimates a production function for China’s agriculture sector using province level data and compares the estimated marginal product of labor with the corresponding wage of this sector. The results show that the marginal product has been increasing (from below) at a faster pace than the wage, as is predicted by the Lewis model. The results indicate that China as a whole is steadily moving toward the Lewis Turning Point.

This paper examines China’s development experience in the light of Lewis’s growth model. It first peruses Lewis’s own writings and those of Fei and Ranis in order to identify the main predictions of the Lewis’s model. The paper next considers the problems that arise in checking the validity of these predictions in general and in the particular case of China. Finally the paper examines actual Chinese data. In particular it examines whether Chinese wage data conform to the Lewis’s prediction regarding the long-term shape of the wage curve. Overall the findings tend to support the predictions of the Lewis model, though there remain many issues that need to be further investigated.

In the past several years, labor shortages in China have become an issue. However, there is heated debate as to whether China has passed the Lewis turning point and moved from a period of unlimited supply to a new era of labor shortage. Most empirical studies on this topic focus on estimation of total labor supply and demand. Yet the poor quality of China’s labor statistics leaves the debate open. In this paper, China’s position along the Lewis continuum is examined though primary surveys of wage rates, which offer a more reliable statistic than employment data. Our results show a clear rising trend in real wage rates since 2003. The acceleration of real wages even in slack seasons indicates that the era of surplus labor is over. This finding has important policy implications for China’s future development.

China is on the eve of a demographic shift that will have profound consequences on its economic and social landscape. Within a few years the working age population will reach a historical peak, and then begin a precipitous decline. This fact, along with anecdotes of rapidly rising migrant wages and episodic labor shortages, has raised questions about whether China is poised to cross the Lewis Turning Point, a point at which it would move from a vast supply of low-cost workers to a labor shortage economy. Crossing this threshold will have far-reaching implications for both China and the rest of the world. This paper empirically assesses when the transition to a labor shortage economy is likely to occur. Our central result is that on current trends, the Lewis Turning Point will emerge between 2020 and 2025. Alternative scenarios—with higher fertility, greater labor participation rates, financial reform or higher productivity—may peripherally delay or accelerate the onset of the turning point, but demographics will be the dominant force driving the depletion of surplus labor.

The paper uses the Lewis model as a framework for examining the labour market progress of two labour-abundant countries, China and South Africa, towards labour shortage and generally rising labour real incomes. In the acuteness of their rural-urban divides, forms of migrant labour, rapid rural-urban migration, and high and rising real wages in the formal sector, the two economies are surprisingly similar. They differ, however, in the dynamism of their formal sector growth of output and employment, and in the growth of their labour forces. Whereas China - a labour-surplus economy par excellence despite unemployment until recently taking only a disguised form - is moving rapidly in the direction of labour scarcity, South Africa - which historically has been short of labour - is moving towards increased labour surplus in the form of open unemployment. The paper draws on research previously conducted by the author in separate research projects on the two countries.

On the basis of perusing Lewis’s own writings and his followers’ works on the Lewis economic growth model, this paper adjusts the meaning of the Lewis turning point (LTP) according to China’s specific institutional system and economic reality: the Lewis turning point is a period of time rather than a time point; and undergoing the LTP is considered as a trend or process of development, during which the supply of labor decreases and the cost of labor increases. With the passing of the LTP, China will not promote its economic growth with a cheap and unlimited labor force; the labor-intensive export oriented economy should be altered, independent technology innovation should be promoted, and industry structure should be adjusted. Changes and transitions in China’s economy will have great significance to the world economy, and the impacts are estimated in the paper with Cambridge-Alphametrics Model (CAM) initially developed by the University of Cambridge. The arrival of the LTP also means China needs to make serious policy efforts to realize the transformation of its economic development pattern, and to avoid the so-called “middle-income trap”.