The informal sector and the internal migration process in developing countries: an examination of the Todaro paradox

For several years, accelerated migrations from rural areas to the cities have been observed. Nevertheless, salary differences have been increasingly small. The result is important problems of over-urbanization and urban unemployment. These observations seem to conflict with the microeconomic theories of migrations in the LDCs which predict, on the contrary, that the migrations should slow down because in this case, the prospect of greater earnings in the city is less promising than in the rural areas. It seems to us that these observations do not take the informal economy into account (because it generally is not included in the official figures); this sector nevertheless absorbs an increasing amount of urban labour. We next propose an original model which explicitly accounts for the informal economy and analyse whether or not unemployment reduction policies are effective in this context.