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Migration and the wage and unemployment gaps between urban and non-urban sectors: A dynamic general equilibrium reinterpretation of the Harris-Todaro equilibrium

  • Lee, Chul-In

This paper offers a dynamic general equilibrium reinterpretation of the static partial migration equilibrium by Harris and Todaro [Harris, J., Todaro, M., 1970. Migration, unemployment and development; a two-sector analysis. American Economic Review 60, 126-142], under (i) flexible urban and rural wages and (ii) free mobility of workers and free entry of firms. The proposed model accounts for the set of stylized facts in developing countries: rural to urban migration and higher urban wages and unemployment. The model allows us to view the wage gap as a compensating differential for the negative amenities associated with job destruction and subsequent costly search on the consumption side, which can also be seen as a match-specific premium based on a sectoral productivity differential on the production side. Our model predicts the comovements among urban and non-urban wages and migration flows to the urban sector, an empirical regularity observed over the urbanization process of developing economies. Finally, we also conduct a welfare analysis.

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Article provided by Elsevier in its journal Labour Economics.

Volume (Year): 15 (2008)
Issue (Month): 6 (December)
Pages: 1416-1434

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Handle: RePEc:eee:labeco:v:15:y:2008:i:6:p:1416-1434
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  1. Yasuhiro Sato, 2004. "Migration, Frictional Unemployment, and Welfare-Improving Labor Policies," Journal of Regional Science, Wiley Blackwell, vol. 44(4), pages 773-793.
  2. Harris, John R & Todaro, Michael P, 1970. "Migration, Unemployment & Development: A Two-Sector Analysis," American Economic Review, American Economic Association, vol. 60(1), pages 126-42, March.
  3. Fujita, Masahisa & Thisse, Jacques-Francois, 1996. "Economics of Agglomeration," Journal of the Japanese and International Economies, Elsevier, vol. 10(4), pages 339-378, December.
  4. Quibria, M G, 1988. "Migration, Trade Unions, and the Informal Sector: A Note on Calvo," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 29(3), pages 557-63, August.
  5. Vishwanath, Tara, 1991. "Information flow, job search, and migration," Journal of Development Economics, Elsevier, vol. 36(2), pages 313-335, October.
  6. Christopher A. Pissarides, 2000. "Equilibrium Unemployment Theory, 2nd Edition," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262161877, June.
  7. 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.
  8. Mortensen, Dale T & Pissarides, Christopher A, 1994. "Job Creation and Job Destruction in the Theory of Unemployment," Review of Economic Studies, Wiley Blackwell, vol. 61(3), pages 397-415, July.
  9. Roback, Jennifer, 1982. "Wages, Rents, and the Quality of Life," Journal of Political Economy, University of Chicago Press, vol. 90(6), pages 1257-78, December.
  10. Fields, Gary S., 1975. "Rural-urban migration, urban unemployment and underemployment, and job-search activity in LDCs," Journal of Development Economics, Elsevier, vol. 2(2), pages 165-187, June.
  11. Fields, Gary S., 1989. "On-the-job search in a labor market model : Ex ante choices and ex post outcomes," Journal of Development Economics, Elsevier, vol. 30(1), pages 159-178, January.
  12. 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).
  13. Brueckner, Jan K. & Zenou, Yves, 1999. "Harris-Todaro models with a land market," Regional Science and Urban Economics, Elsevier, vol. 29(3), pages 317-339, May.
  14. Behrman, Jere R., 1999. "Labor markets in developing countries," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 43, pages 2859-2939 Elsevier.
  15. Stiglitz, Joseph E, 1974. "Alternative Theories of Wage Determination and Unemployment in LDC'S: The Labor Turnover Model," The Quarterly Journal of Economics, MIT Press, vol. 88(2), pages 194-227, May.
  16. 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.
  17. Basu, Kaushik C, 1980. "Optimal Policies in Dual Economies," The Quarterly Journal of Economics, MIT Press, vol. 95(1), pages 187-96, August.
  18. Coulson, N Edward & Laing, Derek & Wang, Ping, 2001. "Spatial Mismatch in Search Equilibrium," Journal of Labor Economics, University of Chicago Press, vol. 19(4), pages 949-72, October.
  19. Ortega, Javier, 2000. "Pareto-Improving Immigration in an Economy with Equilibrium Unemployment," Economic Journal, Royal Economic Society, vol. 110(460), pages 92-112, January.
  20. Mohtadi, Hamid, 1989. "Migration and job search in a dualistic economy : A Todaro-Stigler synthesis," Economics Letters, Elsevier, vol. 29(4), pages 373-378.
  21. Hosios, Arthur J, 1990. "On the Efficiency of Matching and Related Models of Search and Unemployment," Review of Economic Studies, Wiley Blackwell, vol. 57(2), pages 279-98, April.
  22. Lucas, Robert E B, 1985. "Migration amongst the Botswana," Economic Journal, Royal Economic Society, vol. 95(378), pages 358-82, June.
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