Pollution from consumption and urban unemployment in a dual economy

Abstract

By incorporating the environmental problems caused by consumption into a theoretical model of rural–urban migration, this study analyzes the effect of a reduction in pollution generation rate and factor accumulation. The environment of each rural and urban area is assumed to deteriorate due to pollution from consumption of the respective inhabitants. For institutional reasons, the urban wage rate is fixed at a higher level than the rural wage rate, and unemployment exists in the urban area. Rural–urban migration occurs because of differences in utility, which is affected by both the environment and expected earning in each area. This study shows that, although reduction in the pollution generation rate improves the environment in both areas, whether it mitigates urban unemployment depends on certain conditions. Regarding the effect of factor accumulation, this study shows that an increase in capital endowment decreases the level of unemployment if and only if the environmental effect outweighs the Rybczynski effect.