Harris-Todaro Model Research Articles

Changes in the Supply of Public Intermediate Goods, Fixed Wage, and the Relative Price in the Harris-Todaro Model

Since the Harris-Todaro model was proposed in 1970, it has played a crucial role in analyzing various environmental and trade issues in developing countries. This paper analyzes the effects of the amount of public intermediate goods provided by the government, the increase in the fixed wage rate in the urban sector, and the changes in the relative international prices of agricultural and manufacturing goods on labor employment, unemployment, and the economic welfare in the context of a small open economy. It also proposes relevant policies to reduce the unemployment rate while improving national welfare.

Urban unemployment, environmental preservation and trade policies in a small open economy with open access renewable resources

This study presents a two-sector dynamic analytical model that examines the impact of trade policies on urban poverty reduction and resource conservation, given that institutionally fixed high urban wages are assumed in the context of the Harris-Todaro model. Rural resource-good and urban manufacturing activities generate simultaneous environmental pressures that can detrimentally impact environmental preservation in a small, open economy. Moreover, this study assumes that the polluting manufacturing sector is the primary cause of environmental degradation and represents a relatively more industrialized developing country. The study finds that raising the import tax on rural resource goods can reduce urban unemployment but worsen environmental quality under dynamic resource conditions. Given institutional distortions, the most efficient policy is to implement a rural income subsidy combined with an urban wage subsidy at a lower rate; alternatively, if the income inequality between regions is sufficiently high, an income tax on urban manufactured goods could be considered. Finally, when considering the endogenous resolution of institutional distortions, an increase in the import tax on rural resource goods can resolve rural institutional distortions, shifting from poorly defined resource management to a perfect private management system. In contrast, implementing an export tariff policy on urban manufactured goods reduces the incentive for rural institutional reform while addressing urban institutional failure.

Educational divergence among urban residents and migrant workers: Evidence from China

While the Harris-Todaro model is a traditional approach used in researching the urban-rural dichotomy, it fails to explain families’ goals to maximize their current utility in terms of intertemporal decision-making conditions. To fill this gap, in this paper, an urban-rural dichotomy model involving labor migration and education is established, in which it is assumed that family utility derives from consumption and children’s educational achievement. The steady-state path derived through the Bellman equation suggests that increasing educational investment and family education intensity leads to a significant urban-rural difference in children’s educational achievement. Compared with the traditional Harris-Todaro model, the transversality condition is loosened in this model, while the unavailability of loans constrains migrant families. Four hypotheses are made and tested using an empirical study. An ordinary least squares regression was used in the analysis, but due to the endogeneity caused by missing variables, the instrumental variable method and two-stage least squares regression were used. The results demonstrate that the household registration system can explain 44.5% of the educational achievement difference, and the initial difference is inflated 4.73 times after nine years of compulsory education. This divergence could increase the differences caused by household registration status, resulting in larger income gaps and intergenerational heredity of identities.

Türkiye’de İşsizlik ve Kentleşmenin Göç Üzerindeki Etkisi: Harris-Todaro Modeli Açısından Bir Değerlendirme

This study tested whether there was a relationship between migration, unemployment, and urbanization based on the Harris-Todaro model in 12 regions of Turkey, which were formed according to NUTS-1 classification, in the period between 2008 and 2019. For this purpose, panel data methods that consider cross-section dependency were used in the study. As a result of the analysis, it was concluded that the Harris-Todaro model was valid in TR1, TR2, TR3, TR4, TR5, and TR6 regions. In TR7, TR8, TR9, TRA, TRB, and TRC regions, it was found that the Harris-Todaro model was not valid.

Detailed Analyses on Why Lewis Model and Harris-Todaro Model are Inapplicable to the Interpretation of Rural-to-Urban Migration in China

Detailed Analyses on Why Lewis Model and Harris-Todaro Model are Inapplicable to the Interpretation of Rural-to-Urban Migration in China

Rural-urban migration at high urbanization levels

This study assesses the empirical relevance of the Harris-Todaro model at high levels of urbanization – a feature that characterizes an increasing number of developing countries, which were largely rural when the model was created 50 years ago. Using data from Brazil, the paper compares observed and model-based predictions of the equilibrium urban employment rate of 449 cities and the rural regions that are the historic sources of their migrant populations. Little support is found in the data for the most basic version of the model. However, extensions that incorporate labor informality and housing markets have much better empirical traction. Harris-Todaro equilibrium relationships are relatively stronger among workers with primary but no high school education, and those relationships are more frequently found under certain conditions: when cities are relatively larger; and when the associated rural areas are closer to the magnet city and populated to a greater degree by young adults, who are most likely to migrate.

COVID-19 crisis and urbanization, migration and inclusive city policies in India: A new theoretical framework

This paper is an earnest effort to develop a coherent theoretical migration model by embedding the dynamics of urban economics, ignored by the celebrated migration models such as Harris–Todaro model of migration. The principal motivation behind the composition is the eruption of the COVID-19 global pandemics, which has forced migrant labours (the engine of a globalized economic system) to shift from the urban areas to their origin. This migration crisis has put a serious challenge for the revitalization of the city economy in the post lockdown period. Further, this raises the question can the city provides the migrants better opportunities and benefits to get them to return? In contrast to standard migration models that attempted to limit the migration into the cities, our new theoretical perspective highlights the importance of agglomeration economies, urban informal sector and the development of core urban infrastructure to catalyse agglomeration externalities in the process of urban development and accommodating rural–urban migrants. The presentation of urban political economy into the theoretical account of migration leads to the importance of policies to augment agglomeration economies. These include the provision of infrastructure and affordable housing and mitigate congestion diseconomies in the form of sprawl, slums, poverty, traffic bottlenecks and so forth. Stopping migration or wage subsidy to the urban producer is not only unrealistic but also a myopic solution. On the contrary, cities should be prepared with planning, financing and governance mechanism to create the infrastructure needed by employment-generating activities, catalysing agglomeration-led and knowledge-powered growth. In the end, our model suggests any approach to deal with urbanization issues in India must bring into account the critical part played by migrants-urban poor and address their needs while benefitting rural areas. The migrants-urban poor do not need charity. They need to be recognised as partners in the wealth creation process of cities and deserve ‘right to the city’ on their merit. While markets have failed them in the past, governments have also not catered to their needs. The urban planning and governance processes which failed to recognise the ‘location’ and ‘access’ of the poor urban migrants need to be reformed.

International Outsourcing, Unemployment and Welfare: A Re-Examination

This paper explores the ramifications of international outsourcing on unemployment, income distribution and welfare, which is an important but yet unresolved issue. Using the well-known Harris-Todaro (1970) model of sector-specific unemployment, it shows that the effects of outsourcing on employment, income-distribution and welfare depend on the sector in which the outsourcing occurs, whereby sectoral factor intensities, unemployment-outsourcing response and the dynamic stability condition play crucial roles. In particular, outsourcing in the manufacturing (primary) sector widens (narrows) income inequality by increasing (decreasing) the sectoral wage gap and raising (not affecting) the rental income of the capital owners in the economy. Moreover, outsourcing in the manufacturing (primary) sector can be welfare-decreasing (is always welfare-increasing) due to its negative (positive) employment effect mitigating (reinforcing) the primary gains from the outsourcing.

International Outsourcing, Unemployment and Welfare: A Re-Examination

This paper explores the ramifications of international outsourcing on unemployment, income distribution and welfare, which is an important but yet unresolved issue. Using the well-known Harris-Todaro (1970) model of sector-specific unemployment, it shows that the effects of outsourcing on employment, income-distribution and welfare depend on the sector in which the outsourcing occurs, whereby sectoral factor intensities, unemployment-outsourcing response and the dynamic stability condition play crucial roles. In particular, outsourcing in the manufacturing (primary) sector widens (narrows) income inequality by increasing (decreasing) the sectoral wage gap and raising (not affecting) the rental income of the capital owners in the economy. Moreover, outsourcing in the manufacturing (primary) sector can be welfare-decreasing (is always welfare-increasing) due to its negative (positive) employment effect mitigating (reinforcing) the primary gains from the outsourcing.

Efficiency wage, unemployment and tourism development: a theoretical analysis

PurposeInternational tourism has experienced a substantial growth during the second half of twentieth century. Tourism development can contribute substantially to the reduction of poverty problem by creating new employment opportunities. The purpose of this paper is to analyse the effect of tourism development on unemployment problem using an efficiency wage framework.Design/methodology/approachThe authors developed a two-sector two-factor static competitive general equilibrium model of a less-developed open economy called South with an imported traded goods sector and with a non-traded tourism service sector, and with two factors, capital and labour. Labour is measured in efficiency unit; there exists unemployment in the labour market which is explained by the efficiency wage hypothesis. The authors also consider extensions of the basic model by introducing an exportable traded goods sector as well as sector-specific capital in the tourism sector.FindingsThe authors show that, with perfect intersectoral mobility of capital and with only one traded good, tourism development in South lowers unemployment rate and raises national income. However, this tourism development neither affects unemployment rate nor national income in South, in the mobile-capital model when there are two traded goods. When tourism sector uses sector-specific capital but capital is mobile between two traded goods sectors, tourism development keeps the unemployment rate unchanged but raises national income in South.Originality/valueThere exists a lot of debate about economic benefits of tourism development in a less-developed economy. A few works analyse the economic effects of tourism without developing formal models. However, no existing work analyses the effect on unemployment in an efficiency wage model. Although Harris–Todaro model is of relevance to explain unemployment in low-income countries, efficiency wage models are relevant for middle-income countries.

Anti‐immigration policy in the destination country and skilled–unskilled wage inequality in a source economy with or without unemployment

AbstractThis paper is aimed at theoretically examining the consequence of the anti‐immigration policy adopted in the destination country on the skilled–unskilled wage inequality in a source nation using a couple of two‐sector, specific‐factor general equilibrium models in both the presence and absence of unemployment. Emigration requires incurring some capital cost for professional skill formation on the part of every prospective emigrant that adds to the opportunity cost of emigration. The authority of the destination country determines the number of visas to be granted and hence directly controls the magnitude of skilled emigration from the source country. In the migration equilibrium, the expected skilled wage income abroad is equal to the opportunity cost of emigration. In both the presence and absence of unemployment of unskilled labor, the outcome of the policy on the wage inequality crucially hinges on both the magnitude of the fixed cost of emigration and the technological factors. In the specific‐factor Harris–Todaro model, the degree of imperfection in the unskilled labor market is an additional factor. Finally, some policy recommendations have been made for protecting the interest of the poor unskilled workforce.

HOW COULD THE CREDIBILITY OF THE HARRIS–TODARO MODEL BE IMPROVED?

A damaging property of the two‐sector, mobile capital Harris–Todaro model (known as the Corden–Findlay model) is that growth in capital (labor) endowment accentuates (mitigates) urban unemployment in a dual economy, limiting the model's applicability to the field of trade and development. To resolve this problem, we introduce the informal credit market, which provides consumption loans to rural workers during the lean season. The informal interest rate is endogenously determined from the maximizing behavior of the informal sector lender. Factor accumulations produce their expected results on the absolute level of urban unemployment, while poverty eradication programs raise the informal interest rate and diminish borrowers' welfare under a wide range of parametric values. Finally, a wage subsidy policy to the urban sector unambiguously lowers the informal interest rate. Urban unemployment decreases while worker welfare improves under reasonable conditions. The result on unemployment is contrary to results of the Corden–Findlay model.

1. ハリス=トダロ・モデルの実証研究(一般報告,第35回大会報告要旨,学会報告)

1. ハリス=トダロ・モデルの実証研究(一般報告,第35回大会報告要旨,学会報告)

Privatization, Unemployment, and Welfare in the Harris-Todaro Model with a Mixed Duopoly

Abstract This paper explores the unemployment and welfare effects of privatization through the Harris-Todaro model with a mixed duopoly. Our approach is more generalized than the existing literature. When capital is sector-specific (i. e., it is in the short run), an increase in the degree of partial privatization will raise the unemployment rate, but the change of social welfare is conditional on the market share of the public firm and the relative degree of partial privatization. When capital is sector-mobile (i. e., it is in the long run), an increase in the degree of partial privatization will reduce the unemployment rate, but the change of social welfare is also dependent on the market share of the public firm and the relative degree of partial privatization. Our results capture the fact that the public firm and the private firm usually coexist in a competitive environment in the real world.

Plights of Migrant Construction Workers

This study attempts to examine the conditions of construction workers and problems faced by them in Gandhinagar city. From the analysis, it is clear that economic condition of the workers has slightly improved, but demographic–social and working–living situations of the workers are extremely pathetic and vulnerable till now. The demand and supply of migrant workers is managed through the contract system. Contractors and sub-contractors play a crucial role in providing facilities and obtaining desired employment within a short time span. From the employment point of view, the industry is totally male dominant and preponderant and female workers are unskilled and remain unskilled during their entire life. Of the many theories of migration, the Harris–Todaro model of migration is partially applicable in the rural-to-urban migration process. Unlike government employees, a construction worker has no social security, no earned leave, no sick leave and no pension or gratuity. Finally, it is clear that the objective of decent work for migrant workers will remain a major challenge for years to come.

Welfare Analysis in an Extended Harris-Todaro Model: An Application of the Atkinson Theorem

I analyze the welfare effects of a policy of modern sector enlargement (MSENL), and a policy of increasing the efficiency of on-the-job search from the urban informal sector (IEOS) in a generalized Harris-Todaro model. I show that MSENL causes a Lorenz worsening of the income distribution and IEOS causes a Lorenz improvement. In a rare direct application of the Atkinson theorem, I conclude that MSENL decreases social welfare and IEOS increases social welfare for all anonymous, increasing and Schur-concave social welfare functions.

Welfare Analysis in an Extended Harris-Todaro Model: An Application of the Atkinson Theorem

AbstractI analyze the welfare effects of a policy of modern sector enlargement (MSENL), and a policy of increasing the efficiency of on-the-job search from the urban informal sector (IEOS) in a generalized Harris-Todaro model. I show that MSENL causes a Lorenz worsening of the income distribution and IEOS causes a Lorenz improvement. In a rare direct application of the Atkinson theorem, I conclude that MSENL decreases social welfare and IEOS increases social welfare for all anonymous, increasing and Schur-concave social welfare functions.

Climate Change and Migration: A CGE Analysis for Two Large Urban Regions of Latin America

Migration is one of the strategies used by populations to adapt to natural shocks and also to respond to economic policies. Climate change will probably have an impact on the productivity of factors and on the health of the population of the Latin America and Caribbean region, triggering migrations. In addition, policies aimed at reducing emissions (like carbon taxes) will change relative prices and the remuneration of factors and, in turn, will alter the allocation of labor between urban and rural areas. This paper explores the potential quantitative relevance of those population movements using a CGE version of the Harris-Todaro model. Two paradigmatic cases are considered: i) domestic or internal migrations, focusing on the case of Sao Paulo (Brazil) and ii) international migrations, analyzing the displacement of population from Bolivia and Paraguay to Argentina.

Migration and Environment

The concept of environmental migrants occurs frequently in the policy debate, in particular with regard to climate change and the incidence of such migration in low-income countries. This article reviews the economic studies of environmentally induced migration. It includes recent empirical analyses that try to link environmental change to migration flows and the spatial distribution of population. A consensus seems to emerge that there is little likelihood of large increases in international migration flows due to climate variability. The evidence to date shows that regional migration will be affected, however, either on the African continent or internally, within country borders. Theoretically, environmentally induced migration can be analyzed using different frameworks: the classical Harris-Todaro model of rural-urban migration, new economic geography models, models grounded in environmental economics of pollution externalities with free factor mobility, and the new economics of labor migration. I review some of the latest attempts to analyze environmentally induced migration theoretically and the policy-relevant conclusions that can be drawn.

Harris-Todaro 모형에 의한 국가간 잠재적 노동인구 이동에 관한 실증분석: 한-중-일 3국을 중심으로

본 연구는 합리적기대에 의한 기대소득 격차를 반영한 Harris-Todaro 모형에 의해 한-중-일 3국간 잠재적 노동인구 이동을 분석하였다. 실증분석 결과에 의하면 한국의 노동시장은 노동인구 유입의 영향력이 약하고, 중국과 일본으로 양방향성의 노동인구 유출이 있는 것으로 나타났다. 중국의 노동시장은 노동인구의 유출입에 미치는 영향력은 약하지만, 한국뿐만 아니라 일본과의 관계에 있어서 노동인구가 유출에서 유입으로 전환되었다. 일본의 노동시장은 일관성 있게 노동인구를 유입시키는 영향력이 있으며, 한국과는 노동인구의 유입, 중국과는 노동인구 유출로 나타났다. 결과적으로 한-중-일 3국간 노동시장은 상호 보완적이기 보다는 대체성이 강한 형태를 유지하고 있다. This study aims to examine potential labor migration between Korea, China, and Japan by Harris-Todaro model which is enhanced in the presence of expected income differential. The results suggest that Korean labor forces are bi-directionally migrated to China and Japan, simultaneously, and Chinese labor forces have been switched from inflow to outflow. On the other hand, Japanese labor markets are characterized by inflow from Korea, and outflow to China. The nature of labor markets in Northeast Asia have been largely transformed such that inflow of immigrants is gradually intimidated. This is mainly due to the fact that the labor markets are gradually homogenized in this region. To this end, it could be tentatively concluded that the labor markets in Northeast Asia seem to be operated by substitutionary rather than complementary natures.