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The Harris-Todaro model of labor migration and its commercial policy implications

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  • Chen, Jiong

Abstract

The pioneering work on rural-urban labor migration by John R. Harris and Michael P. Todaro in late 1960s to early 1970s generated such enormous interest and later contributions that they have become an important and unique component of development economics literature. The Harris-Todaro (HT) model admits the existence, in equilibrium, of a chronic large amount of urban unemployment due to the presence of urban minimum wages. The distinguishing feature of this model is that labor migration proceeds in response to urban-rural differences in expected earnings with the urban employment rate acting as an equilibrating force on such migration;This dissertation includes three articles and deals with the topic of international trade policies of an HT-type economy with labor surplus. The argument is carried out in the context of evaluating outward-oriented vs inward-oriented trade practices. The basic structure is that of Corden and Findlay, i.e., with intersectoral capital mobility and the small and open country assumption, whereupon necessary modifications are added to allow for the discussions on the effect of the presence of a service sector and risk averse workers;The essence of the results is that protectionist practices are welfare reducing for a two sector HT economy with risk neutral workers but maybe beneficial in the presence of a nontraded service sector or risk averse workers. More precisely, with a third sector, the nontraded service sector, that uses only labor as input, production subsidies to the import competing industry or import tariffs can be welfare improving. When workers are risk averse, the optimal police combination is a positive production subsidy and a positive tariff. Thus, large amount of urban unemployment (or, underemployment as characterized in the service sector in this dissertation) and risk attitude of the workers can be used as justification (as the infant industry argument) for some LDCs' trade restraining practices.

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  • Chen, Jiong, 1994. "The Harris-Todaro model of labor migration and its commercial policy implications," ISU General Staff Papers 1994010108000011587, Iowa State University, Department of Economics.
    • Handle: RePEc:isu:genstf:1994010108000011587
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    References listed on IDEAS

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    1. Murray C. Kemp, 1968. "Some Issues In The Analysis Of Trade Gains," Oxford Economic Papers, Oxford University Press, vol. 20(2), pages 149-161.
    2. Bhagwati, Jagdish N & Srinivasan, T N, 1974. "On Reanalyzing the Harris-Todaro Model: Policy Rankings in the Case of Sector-Specific Sticky Wages," American Economic Review, American Economic Association, vol. 64(3), pages 502-508, June.
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