The paper "Asian Business Environment" is a great example of a business case study. China has a population of 1.3 billion and the country has sufficient labor supply. Rapid China’ s economic growth is linked to the low-priced and limitless availability of labor in the non-agricultural sector and the industrial sector that manufacture goods for importation. However, before the year 2009, China experienced labor shortage and employers experienced challenges engaging labor migrants (Zhang et al, 2011, p. 544). Currently, there are numerous arguments as to whether China had reached the Lewis turning point (LTP) or not.
Some reports argue that China has not reached the Lewis turning; others claim it has achieved this point, and a small proportion argues that it is past this point. China had surplus labor supply but the majority have been taken in by the industrial sector, an indication of the Lewis turning point. Lewis turning point may be an unavoidable stage in development and if China has not achieved this phase, it is almost there and will be past it soon (Cai, 2010.p. 111). On a personal perspective, China has achieved the LTP, much earlier than expected, but it is not yet past this phase.
The LTP will have extensive impacts on the country’ s economy. This phase is not definite and may last for several decades. China is an international manufacturing center and these effects will have significant impacts on the globe’ s economy (Karlsson, 2012, p. 940). This paper seeks to assess whether China has attained the Lewis turning point and the consequences it will have on the global economy. For the role of explaining of the developmental phases of any economy, the Lewis model was introduced by Arthur Lewis in the year 1954 and was realized in the early 1970s by Lewis, Ranis, and Fei.
The model states that a young economy is identified by the presence of a dual economy (Knight et al, 2011, p. 591). A dual economy means that there are two economic compositions; the agricultural and the industrial sector (Fang, 2010, p. 5). When an economy approaches the LTP, the extension of the industrial sector draws labor from the agricultural sector until the surplus labor is drained.
At this point, the industrial sector grows rapidly and most people migrate from the rural areas to the cities and it is referred to as urbanization phase (Peng, 2011, p. 586). Consequently, surplus labor in the agricultural sector is exhausted, labor in the sector continues to flow into the industrial sector due to high marginal productivity which leads to high wage rate until an equilibrium is attained (Tyers, 2013, p. 12). This point is referred to as Lewis Turning Point (Qu & Cai, 2011, p. 20).
It is characterized by an increase in labor costs, an increase in capital investment in the sector (Du & Yang, 2014, p. 618). On the case of China, the country experienced labor shortages and there are numerous debates as to whether it has reached the Lewis turning point. Some reports show that China has achieved the Lewis turning point while some argue that China has not yet achieved the Lewis turning point. On the issue of surplus labor in china’ s traditional sector, some reports have demonstrated labor inadequacy while other reports argue that there are significant amounts of unskilled personnel in the agricultural sector.
This phenomenon is referred to as the China Paradox. Lewis turning point is identified by the extinction of surplus labor. A report given in the year 2010 indicated that China’ s surplus labor has not decreased and it has increased significantly in the last few years. Costs associated with mobility and employment search has been identified as the major reason why there is surplus labor but very low labor migration (Yang, 2013, p. 1).
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