Structural Change Models — Lewis Two-Sector Model — Patterns-of-Development Approach These models tend to emphasize the transformation of domestic economic structures from traditional subsistence agriculture economies to more modern, urbanized and industrially diverse manufacturing and service economies.Lewis Two-Sector Model The economy consists of two sectors — The traditional agricultural sector is typically characterized by low wages, an abundance of labour, and low productivity through a labour intensive production process. — the modern manufacturing sector is defined by higher wage rates than the agricultural sector, higher marginal productivity, and a demand for more workers initially Labour can be withdrawn from the traditional sector without any loss of output Focus is on labour transfer and output and employment growth in the modern sector. The rate at which this occurs is determined by the rate of industrial investment and capital accumulation in the modern sector. Wages in the industrial sector are fixed at a premium above wages in the traditional sector. It is assumed that rural labour supply is perfectly elastic.+ Lewis assumed that with the urban wage above the average rural wage, that the modern-sector employers could hire as many surplus rural workers as the wanted without fear of rising wages -The successive reinvestment of profits from the modern sector would increase the production possibilities of that sector leading to successive increases in the demand for labour. The employment expansion in the industrial sector would continue until all the excess labour from the traditional sector is absorbed. From that point onwards, modern sector wages would rise in order for industrial employers to attract additional workers from the traditional sector. ¢Improvement in the marginal productivity of labour in the agricultural sector is assumed to be a low priority as the hypothetical developing nation's investment is going towards the physical capital stock in the manufacturing sector.