IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/2201.html
   My bibliography  Save this paper

The Harris-Todaro Hypothesis

Author

Listed:
  • Khan, M. Ali Khan

Abstract

The Harris-Todaro hypothesis replaces the equality of wages by the equality of ‘expected’ wages as the basic equilibrium condition in a segmented but homogeneous labour market, and in so doing it generates an equilibrium level of urban unemployment when a mechanism for the determination of urban wages is specified. This article reviews work in which the Harris-Todaro hypothesis is embedded in canonical models of trade theory in order to investigate a variety of issues in development economics. These include the desirability (or the lack thereof) of foreign investment, the complications of an informal sector, and the presence of clearly identifiable ethnic groups.

Suggested Citation

  • Khan, M. Ali Khan, 2007. "The Harris-Todaro Hypothesis," MPRA Paper 2201, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:2201
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/2201/1/MPRA_paper_2201.pdf
    File Function: original version
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Marjit, Sugata, 1991. "Agro-based industry and rural-urban migration : A case for an urban employment subsidy," Journal of Development Economics, Elsevier, vol. 35(2), pages 393-398, April.
    2. Yasuhiro Sato, 2004. "Migration, Frictional Unemployment, and Welfare‐Improving Labor Policies," Journal of Regional Science, Wiley Blackwell, vol. 44(4), pages 773-793, November.
    3. repec:bla:econom:v:48:y:1981:i:191:p:219-34 is not listed on IDEAS
    4. Todaro, Michael P, 1969. "A Model for Labor Migration and Urban Unemployment in Less Developed Countries," American Economic Review, American Economic Association, vol. 59(1), pages 138-148, March.
    5. Srinivasan, T. N. & Bhagwati, Jagdish, 1975. "Alternative policy rankings in a large, open economy with sector-specific, minimum wages," Journal of Economic Theory, Elsevier, vol. 11(3), pages 356-371, December.
    6. Khan, M. Ali, 1982. "Tariffs, foreign capital and immiserizing growth with urban unemployment and specific factors of production," Journal of Development Economics, Elsevier, vol. 10(2), pages 245-256, April.
    7. 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.
    8. Marjit, Sugata, 2003. "Economic reform and informal wage--a general equilibrium analysis," Journal of Development Economics, Elsevier, vol. 72(1), pages 371-378, October.
    9. Brecher, Richard A. & Diaz Alejandro, Carlos F., 1977. "Tariffs, foreign capital and immiserizing growth," Journal of International Economics, Elsevier, vol. 7(4), pages 317-322, November.
    10. James E. Rauch, 1993. "Economic Development, Urban Underemployment, and Income Inequality," Canadian Journal of Economics, Canadian Economics Association, vol. 26(4), pages 901-918, November.
    11. Fields, Gary S., 1997. "Wage floors and unemployment: A two-sector analysis," Labour Economics, Elsevier, vol. 4(1), pages 85-91, March.
    12. Moene, Karl Ove, 1988. "A reformulation of the Harris-Todaro mechanism with endogenous wages," Economics Letters, Elsevier, vol. 27(4), pages 387-390.
    13. Shigemi Yabuuchi & Hamid Beladi, 2001. "Urban unemployment, informal sector and development policies," Journal of Economics, Springer, vol. 74(3), pages 301-314, October.
    14. Chaudhuri, Sarbajit & Mukherjee, Ujjaini, 2002. "Removal of protectionism, foreign investment and welfare in a model of informal sector," Japan and the World Economy, Elsevier, vol. 14(1), pages 101-116, January.
    15. Bhagwati, Jagdish N. & Srinivasan, T. N., 1977. "Education in a `job ladder' model and the fairness-in-hiring rule," Journal of Public Economics, Elsevier, vol. 7(1), pages 1-22, February.
    16. Chakravarty, Satya R. & Dutta, Bhaskar, 1990. "Migration and welfare," European Journal of Political Economy, Elsevier, vol. 6(1), pages 119-138, August.
    17. 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.
    18. repec:bla:econom:v:58:y:1991:i:229:p:107-21 is not listed on IDEAS
    19. Fields,Gary S., 2005. "A guide to multisector labor market models," Social Protection and Labor Policy and Technical Notes 32547, The World Bank.
    20. Chaudhuri, Sarbajit & Mukhopadhyay, Ujjaini, 2003. "Free Education Policy and Trade Liberalization: Consequences on Child and Adult Labour Markets in a Small Open Economy," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 18, pages 336-359.
    21. Stiglitz, Joseph E, 1976. "The Efficiency Wage Hypothesis, Surplus Labour, and the Distribution of Income in L.D.C.s," Oxford Economic Papers, Oxford University Press, vol. 28(2), pages 185-207, July.
    22. Richard Agesa, 2000. "The incentive for rural to urban migration: a re-examination of the Harris-Todaro model," Applied Economics Letters, Taylor & Francis Journals, vol. 7(2), pages 107-110.
    23. Bhagwati, Jagdish N. & Srinivasan, T. N., 1971. "The theory of wage differentials: Production response and factor price equalisation," Journal of International Economics, Elsevier, vol. 1(1), pages 19-35, February.
    24. Chi-Chur Cho & Eden Yu, 1999. "Export Promotion, Sectoral Unemployment and National Welfare," International Economic Journal, Taylor & Francis Journals, vol. 13(4), pages 1-13.
    25. Khan, M. Ali & Naqvi, Syed Nawab Haider, 1983. "Capital markets and urban unemployment," Journal of International Economics, Elsevier, vol. 15(3-4), pages 367-385, November.
    26. Sarbajit Chaudhuri, 2001. "Foreign Capital Inflow, Non-traded Intermediary, Urban Unemployment, and Welfare in a Small Open Economy: A Theoretical Analysis," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 40(3), pages 225-235.
    27. Chao, Chi-Chur & Yu, Eden S. H., 1995. "The shadow price of foreign exchange in a dual economy," Journal of Development Economics, Elsevier, vol. 46(1), pages 195-202, February.
    28. Akerlof, George A & Stiglitz, Joseph E, 1969. "Capital, Wages and Structural Unemployment," Economic Journal, Royal Economic Society, vol. 79(314), pages 269-281, June.
    29. M. Ali Khan, 1992. "On Measuring the Social Opportunity Cost of Labour in the Presence of Tariffs and an Informal Sector," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 31(4), pages 535-564.
    30. Gupta, Manash Ranjan, 1997. "Informal sector and informal capital market in a small open less-developed economy," Journal of Development Economics, Elsevier, vol. 52(2), pages 409-428, April.
    31. Chao, Chi-Chur & Yu, Eden S. H., 1992. "Capital markets, urban unemployment and land," Journal of Development Economics, Elsevier, vol. 38(2), pages 407-413, April.
    32. Fields,Gary S., 2005. "A guide to multisector labor market models," Policy Research Working Paper Series 32547, The World Bank.
    33. Suits, Daniel B, 1985. "U.S. Farm Migration: An Application of the Harris-Todaro Model," Economic Development and Cultural Change, University of Chicago Press, vol. 33(4), pages 815-828, July.
    34. Moene, Karl Ove, 1992. "Poverty and Landownership," American Economic Review, American Economic Association, vol. 82(1), pages 52-64, March.
    35. Ronald W. Jones, 2018. "The Structure of Simple General Equilibrium Models," World Scientific Book Chapters, in: International Trade Theory and Competitive Models Features, Values, and Criticisms, chapter 4, pages 61-84, World Scientific Publishing Co. Pte. Ltd..
    36. Marjit, Sugata & Beladi, Hamid, 2003. "Possibility or impossibility of paradoxes in the small country Harris-Todaro framework: a unifying analysis," Journal of Development Economics, Elsevier, vol. 72(1), pages 379-385, October.
    37. repec:bla:econom:v:64:y:1997:i:254:p:345-52 is not listed on IDEAS
    38. Jones, R.W. & Marjit, S., 1992. "International Trade and Endogenous Production Structures," RCER Working Papers 312, University of Rochester - Center for Economic Research (RCER).
    39. Chao, Chi-Chur & Yu, Eden S. H., 1994. "Foreign capital inflows and welfare in an economy with imperfect competition," Journal of Development Economics, Elsevier, vol. 45(1), pages 141-154, October.
    40. Rauch, James E., 1991. "Modelling the informal sector formally," Journal of Development Economics, Elsevier, vol. 35(1), pages 33-47, January.
    41. Gupta, Manash Ranjan, 1988. "Migration, Welfare, Inequality and Shadow Wage," Oxford Economic Papers, Oxford University Press, vol. 40(3), pages 477-486, September.
    42. Chi-Chur Chao & Eden S. H. Yu, 1993. "Content Protection, Urban Unemployment and Welfare," Canadian Journal of Economics, Canadian Economics Association, vol. 26(2), pages 481-492, May.
    43. Beladi, Hamid & Naqvi, Nadeem, 1988. "Urban unemployment and non-immiserizing growth," Journal of Development Economics, Elsevier, vol. 28(3), pages 365-376, May.
    44. Ying-Foon Chow & Jinli Zeng, 2001. "Foreign capital in a neoclassical model of growth," Applied Economics Letters, Taylor & Francis Journals, vol. 8(9), pages 613-615.
    45. Jai‐Young Choi & Eden S. H. Yu, 2006. "Industrial Targeting and Non‐shiftable Capital in the Harris–Todaro Model," Review of International Economics, Wiley Blackwell, vol. 14(5), pages 910-921, November.
    46. Calvo, Guillermo A, 1978. "Urban Employment and Wage Determination in LDC's: Trade Unions in the Harris-Todaro Model," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 19(1), pages 65-81, February.
    47. Basu, Arnab K., 1996. "Locational choice for free trade zones: a comment," Journal of Development Economics, Elsevier, vol. 50(2), pages 381-387, August.
    48. Ali Khan, M., 1979. "A multisectoral model of a small, open economy with non-shiftable capital and imperfect labor mobility," Economics Letters, Elsevier, vol. 2(4), pages 369-375.
    49. Harris, John R & Todaro, Michael P, 1970. "Migration, Unemployment & Development: A Two-Sector Analysis," American Economic Review, American Economic Association, vol. 60(1), pages 126-142, March.
    50. repec:bla:econom:v:64:y:1997:i:254:p:353-63 is not listed on IDEAS
    51. 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.
    52. Calvo, Guillermo A & Wellisz, Stanislaw, 1978. "Supervision, Loss of Control, and the Optimum Size of the Firm," Journal of Political Economy, University of Chicago Press, vol. 86(5), pages 943-952, October.
    53. Kausik Gupta & Manash Gupta, 1998. "Foreign enclaves and economic development: A theoretical analysis," Journal of Economics, Springer, vol. 67(3), pages 317-336, October.
    54. repec:bla:econom:v:42:y:1975:i:165:p:59-78 is not listed on IDEAS
    55. Fields, Gary S., 2005. "A welfare economic analysis of labor market policies in the Harris-Todaro model," Journal of Development Economics, Elsevier, vol. 76(1), pages 127-146, February.
    56. Chi-Chur Chao & Eden S. H. Yu, 1997. "Trade Liberalization in Oligopolistic Competition with Unemployment: A General Equilibrium Analysis," Canadian Journal of Economics, Canadian Economics Association, vol. 30(2), pages 479-496, May.
    57. Gupta, Manash Ranjan, 1995. "Tax on foreign capital income and wage subsidy to the urban sector in the Harris-Todaro model," Journal of Development Economics, Elsevier, vol. 47(2), pages 469-479, August.
    58. Chau, Nancy H & Khan, M Ali, 2001. "Optimal Urban Employment Policies: Notes on Calvo and Quibria," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 42(2), pages 557-568, May.
    59. Kar, Saibal & Marjit, Sugata, 2001. "Informal sector in general equilibrium: welfare effects of trade policy reforms," International Review of Economics & Finance, Elsevier, vol. 10(3), pages 289-300, July.
    60. Yabuuchi, Shigemi & Hamid, Hamid, 2005. "Foreign Investment, Urban Unemployment, and Informal Sector," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 20, pages 123-138.
    61. Chi‐Chur Chao & Joe R. Kerkvliet & Eden S. H. Yu, 2000. "Environmental Preservation, Sectoral Unemployment, and Trade in Resources," Review of Development Economics, Wiley Blackwell, vol. 4(1), pages 39-50, February.
    62. Jones, Ronald W, 1971. "Distortions in Factor Markets and the General Equilibrium Model of Production," Journal of Political Economy, University of Chicago Press, vol. 79(3), pages 437-459, May-June.
    63. François Bourguignon, 1990. "Growth and Inequality in the Dual Model of Development: The Role of Demand Factors," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 57(2), pages 215-228.
    64. J. Bhagwati & T. N. Srinivasan, 1973. "The Ranking of Policy Interventions Under Factor Market Imperfections: The Case of Sector-Specific Sticky Wages and Unemployment," Working papers 100, Massachusetts Institute of Technology (MIT), Department of Economics.
    65. Sarbajit Chaudhuri, 2003. "How and how far to liberalize a developing economy with informal sector and factor market distortions," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 12(4), pages 403-428.
    66. M. Ali Khan & Po-Sheng Lin, 1982. "Sub -optimal Tariff Policy and Gains from Trade for LDCs with Urban Unemployment," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 21(2), pages 105-126.
    67. Partridge, Mark D. & Rickman, Dan S., 1997. "Has the wage curve nullified the Harris-Todaro model? Further US evidence," Economics Letters, Elsevier, vol. 54(3), pages 277-282, July.
    68. Grossman, Gene M., 1983. "Partially mobile capital : A general approach to two-sector trade theory," Journal of International Economics, Elsevier, vol. 15(1-2), pages 1-17, August.
    69. repec:bla:econom:v:60:y:1993:i:237:p:79-103 is not listed on IDEAS
    70. Khan, M Ali, 1991. "Ethnic Groups and the Heckscher-Ohlin-Samuelson Trade Model," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 1(4), pages 355-371, October.
    71. Jai-Young Choi, 1999. "Factor Growth, Urban Unemployment and Welfare Under Variable Returns to Scale," International Economic Journal, Taylor & Francis Journals, vol. 13(4), pages 17-34.
    72. Gupta, Manash Ranjan, 1993. "Rural-urban migation, informal sector and development policies A theoretical analysis," Journal of Development Economics, Elsevier, vol. 41(1), pages 137-151, June.
    73. Neary, J Peter, 1978. "Dynamic Stability and the Theory of Factor-Market Distortions," American Economic Review, American Economic Association, vol. 68(4), pages 671-682, September.
    74. Manjusri Bandyopadhyay & Manas Gupta, 1995. "Development policies in the presence of an informal sector: A note," Journal of Economics, Springer, vol. 61(3), pages 301-315, October.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Muhammad Arshad Khan, 2007. "Foreign Direct Investment and Economic Growth: The Role of Domestic Financial Sector," PIDE-Working Papers 2007:18, Pakistan Institute of Development Economics.
    2. Sarbajit Chaudhuri & Jayanta Kumar Dwibedi, 2017. "Foreign Direct Investment and Domestic Child Labor," Review of Development Economics, Wiley Blackwell, vol. 21(2), pages 383-403, May.
    3. Muhammad Irfan, 2010. "A Review of the Labour Market Research at PIDE 1957-2009," PIDE Books, Pakistan Institute of Development Economics, number 2010:1 edited by Rashid Amjad & Aurangzeb A. Hashmi, October.
    4. Chaudhuri, Sarbajit & Kumar Dwibedi, Jayanta & Biswas, Anindya, 2017. "Subsidizing healthcare in the presence of market distortions," Economic Modelling, Elsevier, vol. 64(C), pages 539-552.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Titas Kumar Bandopadhyay, 2007. "Trade Reform, Capital Mobility, and Efficiency Wage in a Harris-Todaro Economy," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 46(2), pages 163-174.
    2. Fields, Gary S., 2005. "A welfare economic analysis of labor market policies in the Harris-Todaro model," Journal of Development Economics, Elsevier, vol. 76(1), pages 127-146, February.
    3. Lall, Somik V. & Selod, Harris & Shalizi, Zmarak, 2006. "Rural-urban migration in developing countries : a survey of theoretical predictions and empirical findings," Policy Research Working Paper Series 3915, The World Bank.
    4. Fields,Gary S., 2005. "A guide to multisector labor market models," Social Protection and Labor Policy and Technical Notes 32547, The World Bank.
    5. Chaudhuri, Sarbajit & Mukhopadhyay, Ujjaini, 2009. "Revisiting the Informal Sector: A General Equilibrium Approach," MPRA Paper 52135, University Library of Munich, Germany.
    6. Jonathan Temple, 2002. "Wage Inequality in a Dual Economy," Bristol Economics Discussion Papers 02/531, School of Economics, University of Bristol, UK.
    7. Sarbajit Chaudhuri, 2016. "Trade Unionism and Welfare Consequences of Trade and Investment Reforms in A Developing Economy," Metroeconomica, Wiley Blackwell, vol. 67(1), pages 152-171, February.
    8. Jonathan R. W. Temple, 2005. "Growth and Wage Inequality in a Dual Economy," Bulletin of Economic Research, Wiley Blackwell, vol. 57(2), pages 145-169, April.
    9. Sugata Marjit & Biswajit Mandal, 2016. "International Trade, Migration and Unemployment – The Role of Informal Sector," Economics and Politics, Wiley Blackwell, vol. 28(1), pages 8-22, March.
    10. Sugata Marjit & Reza Oladi, 2020. "Internal Migration, Minimum Rural Wage and Employment Guarantee: Recasting Harris-Todaro," Working Papers 2047, Indian Institute of Foreign Trade.
    11. Chaudhuri, Sarbajit, 2007. "Foreign capital, welfare and urban unemployment in the presence of agricultural dualism," Japan and the World Economy, Elsevier, vol. 19(2), pages 149-165, March.
    12. Titas Bandopadhyay, 2005. "Universal Education And Its Impact On The Child And The Adult Labour Market," GE, Growth, Math methods 0511002, University Library of Munich, Germany.
    13. Bandopadhyay, Titas Kumar, 2002. "Foreign enclaves, informal sector and urban unemployment: A theoretical analysis," MPRA Paper 3136, University Library of Munich, Germany.
    14. Lee, Chul-In, 2008. "Migration and the wage and unemployment gaps between urban and non-urban sectors: A dynamic general equilibrium reinterpretation of the Harris-Todaro equilibrium," Labour Economics, Elsevier, vol. 15(6), pages 1416-1434, December.
    15. Titas Bandopadhyay, 2005. "On-The-Job Search, Urban Informal Sector And The Development Policies-A General Equilibrium Analysis," GE, Growth, Math methods 0511004, University Library of Munich, Germany.
    16. Chaudhuri, Sarbajit, 2014. "How can trade unionism affect welfare consequences of trade and investment reforms in a developing economy?," MPRA Paper 59063, University Library of Munich, Germany.
    17. Sarbajit Chaudhuri & Sushobhan Mahata & Salonkara Chaudhuri, 2022. "COVID-19 disaster and employment generation program in a developing economy," Journal of Social and Economic Development, Springer;Institute for Social and Economic Change, vol. 24(1), pages 46-64, June.
    18. Chaudhuri, Sarbajit & Banerjee, Dibyendu, 2006. "Economic Liberalization and Informal Wage in a Small Open Economy: Does Capital Mobility count?," MPRA Paper 1353, University Library of Munich, Germany.
    19. Jonathan Temple, 2002. "The Costs of Dualism," Bristol Economics Discussion Papers 02/532, School of Economics, University of Bristol, UK.
    20. Busso, Matias & Chauvin, Juan Pablo & Herrera L., Nicolás, 2021. "Rural-urban migration at high urbanization levels," Regional Science and Urban Economics, Elsevier, vol. 91(C).

    More about this item

    Keywords

    Harris-Todaro; Wages; Labour Economics; Labour Market; Rural to Urban Migration;
    All these keywords.

    JEL classification:

    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:2201. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Joachim Winter (email available below). General contact details of provider: https://edirc.repec.org/data/vfmunde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.