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The Todaro Paradox Revisited

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  • Zenou, Yves

    ()
    (The Research Institute of Industrial Economics)

Abstract

The Todaro Paradox states that policies aimed at reducing urban unemployment are bound to backfire: they will raise rather than reduce urban unemployment. The aim of this paper is to reexamine this paradox in the context of efficiency wage and search-matching models. For that, we study a policy that consists in decreasing the urban unemployment benefit. In an efficiency wage model, we find that there is no Todaro paradox while this is not always true in a search-matching model since a decrease in the urban unemployment benefit can increase both urban employment and unemployment.

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Bibliographic Info

Paper provided by Research Institute of Industrial Economics in its series Working Paper Series with number 652.

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Length: 25 pages
Date of creation: 09 Nov 2005
Date of revision:
Handle: RePEc:hhs:iuiwop:0652

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Keywords: Efficiency Wages; Search-Matching; Rural-Urban Migration; Policy;

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References

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  2. Banerjee, Biswajit, 1984. "Information flow, expectations and job search : Rural-to-urban migration process in India," Journal of Development Economics, Elsevier, vol. 15(1-3), pages 239-257.
  3. ZENOU, Yves & SMITH, Tony E., 1994. "Efficiency Wages, Involuntary Unemployment and Urban Spatial Structure," CORE Discussion Papers 1994076, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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  7. Barbara Petrongolo & Christopher Pissarides, 2000. "Looking into the black box: a survey of the matching function," LSE Research Online Documents on Economics 2122, London School of Economics and Political Science, LSE Library.
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  9. Raimondos, Pascalis, 1993. "On the Todaro paradox," Economics Letters, Elsevier, vol. 42(2-3), pages 261-267.
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  24. Stark, Oded & Ranjan Gupta, Manash & Levhari, David, 1991. "Equilibrium urban unemployment in developing countries : Is migration the culprit?," Economics Letters, Elsevier, vol. 37(4), pages 477-482, December.
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Citations

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Cited by:
  1. Mathan Satchi & Jonathan Temple, 2008. "Online Appendix for "Labor Markets and Productivity in Developing Countries"," Technical Appendices 06-167, Review of Economic Dynamics.
  2. Satchi, Mathan & Temple, Jonathan, 2006. "Growth and Labour Markets in Developing Countries," CEPR Discussion Papers 5515, C.E.P.R. Discussion Papers.
  3. Mathan Satchi & Jonathan Temple, 2008. "Labour Markets and Productivity in Developing Countries," Studies in Economics 0805, Department of Economics, University of Kent.
  4. Sergio Vergalli, 2011. "Entry and Exit Strategies in Migration Dynamics," Journal of Labor Research, Springer, vol. 32(4), pages 362-389, December.
  5. Wayne Edwards & Lee Huskey, 2008. "Job search with an external opportunity: an experimental exploration of the Todaro Paradox," The Annals of Regional Science, Springer, vol. 42(4), pages 807-819, December.

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