The structural segmentation between formal and informal sectors.
Labor underemployment in rural and traditional economies.
The role of capital accumulation and reinvestment as drivers of long-term economic transformation.
Its applicability is particularly visible in economies where informal labor coexists with expanding modern industries, enabling comparative studies on productivity, income disparities, and sectoral labor mobility.
B. Limitations in the Indonesian Context
Despite its historical influence, the dual economy model presents key limitations when applied to contemporary Indonesia:
It assumes a linear and unidirectional transformation, where labor from the traditional sector inevitably moves toward the formal sector.
It fails to account for horizontal economic fragmentation, where multiple sectors (traditional, industrial, digital, and AI-based) coexist in parallel without clear functional integration.
The model overlooks the non-linear dynamics of labor shifts---such as informal actors entering platform economies without moving through formal industries.
For instance, many urban informal workers in Indonesia do not transition into factory or office work but instead jump directly into the third layer (online platforms) or remain entirely detached from both industrial and digital systems. This breaks the Lewis assumption of sequential sectoral absorption.
C. Continued Relevance and the Indonesian Fragmentation
While the dual economy model remains analytically valuable, especially in understanding income inequality and informal sector persistence, its binary framework does not adequately capture the complexity and stratification of Indonesia's economy. The persistence of a large, productive informal sector that neither supplies nor integrates with formal industry challenges the model's core assumption that the informal economy functions merely as a surplus labor reservoir.
Moreover, the emergence of multi-directional flows---e.g., layoffs from modern industry returning to informal or platform-based work---further complicates the picture. In peri-urban areas like Tangerang, for example, small-scale factories operate outside digital and banking ecosystems, contributing significantly to production yet remaining disconnected from formal data and credit systems.
In sum, Indonesia's economic landscape demands a model beyond Lewis's binary---one that reflects fragmented co-existence, partial interconnectivity, and adaptive stratification rather than a singular developmental trajectory.
2. Sociotechnical Systems Theory
Sociotechnical Systems (STS) Theory emerged in the mid-20th century, particularly from the Tavistock Institute's studies on coal mining operations in the UK. It posits that any effective system is a joint optimization of social and technical subsystems, emphasizing the interdependence between human elements (people, institutions, culture) and technological infrastructures (tools, processes, platforms). In the context of economic development, STS theory encourages a holistic approach: technology adoption must be accompanied by corresponding changes in organizational practices, skillsets, and socio-cultural norms to achieve sustainable performance.
A. Key Contribution: Technology as Embedded in Social Context
