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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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Cited by:
  1. Sergio Vergalli, 2011. "Entry and Exit Strategies in Migration Dynamics," Journal of Labor Research, Springer, vol. 32(4), pages 362-389, December.
  2. Mathan Satchi & Jonathan Temple, 2008. "Labour Markets and Productivity in Developing Countries," Studies in Economics 0805, Department of Economics, University of Kent.
  3. Satchi, Mathan & Temple, Jonathan, 2006. "Growth and Labour Markets in Developing Countries," CEPR Discussion Papers 5515, C.E.P.R. Discussion Papers.
  4. Mathan Satchi & Jonathan Temple, 2008. "Online Appendix for "Labor Markets and Productivity in Developing Countries"," Technical Appendices 06-167, Review of Economic Dynamics.
  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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