Topic 4B - Rural-Urban Migration and Development

Question 1

What are the key issue of unemployment in developing nations?

Answer 1

• Open unemployment
• Under unemployment
• Hidden Unemployment

Question 2

What is SDG 11?

Answer 2

Covers sanitation, water, health and education

Question 3

In the role/importance of economies what is agglomeration economies?

Answer 3

Benefits that come when firms and people locate near one another
together in cities and industrial clusters

Question 4

What is the issue of the urban bias in development policies?

Answer 4

• Because certain groups in urban area can pressure govts to protect their interests
• More money usually put into urban areas.

Question 5

What are the implications of slums for both the slum residents and govts?

Answer 5

Residents:

• No formal right to remain on land
• No incentive to develop land for future
• Repressive policies - harassment etc.

Govts:
- Ignore the issue of slums 
or 
- Improve the slums 
But mistrust issue, could create magnet for more slums

Question 6

How are the formal sector and informal sector interrelated?

Answer 6

• Excessive Regulation in formal sector

- Higher efficiency wages, less informal sector or higher wages = more unemployment = more informal sector

Question 7

Why should the govt promote the urban informal sector?

Answer 7

->Low ‘capital intensity’
->Provides access to (informal) training, and
apprenticeships
->Demand for less- or un-skilled workers
->Environment

Formal sector = Higher incomes/markets = Informal Sectors = Cheaper goods and services = increase formal sector etc.

Question 8

Why should the govt not promote the urban informal sector?

Answer 8

• > Rural-urban migration incentive
• > Over-burden urban-area facilities
• > Environmental issues

Question 9

What are some policy approaches toward the informal sector?

Answer 9

1. Include participants in design process;
2. Empower women;
3. Improve financial access and inclusion.

Question 10

What are some reasons behind the rural urban migration?

Answer 10

1. Individual decision (self-interest)
2. Household decision
   e. g. Marriages,Escape from disease, famine, violence; or Economic factors (wage differentials).Family portfolio diversification, “Lights of the city

Question 11

Some stats behind the income differential from rural to urban

Answer 11

• > Mexican migrants to the US: PPP-adjusted wage gap between destination and origin in jobs requiring identical skills e.g., $2.4/hr to $19.9/hr (2015); $2.3/hr to $20.8/hr (2017).
• > Remittances - liquidity and risk mitigation.

Question 12

What does the Todaro Model attempt to explain?

Answer 12

why rural-urban migration likely to persist despite high levels of urban unemployment.

Question 13

When is there an equilibrium in the Todaro Model

Answer 13

When Wa = PWm = Lm/L us x W bar m

Where:
Wa  = Agri sector income 
Lm = Employment in (urban) manufacturing sector
Lus = Those available to work in city
W bar m = Urban min wage
PWm = Prob of getting job in city

Question 14

What is the implication of the Todaro model?

Answer 14

• > W bar m far above Wm* means only Lm employed
• > Those in agriculture want W bar m because if only small proportion employed in urban (Lm) then drives down wages in agri to W**
• > Causing attraction to move to city

SEE GRAPH TO THIS

Question 15

When does unemployment stop in the Todaro model?

Answer 15

When W agri = P wm

Question 16

What does the basic Todaro model fail to consider?

Answer 16

Informal sector in urban

Probability of urban job boosted by skills, qualification and networks

Question 17

What does the Harris-Todaro model explain?

Answer 17

That there is diff probablities of getting urban job, urban informal or unemployment (SEE PROB GRAPH IN NOTES)

If agri expect wage = Urban no incentive to move

Question 18

What is the expected wage in the urban area?

Answer 18

(P) W bar + (1-P) Wui

Where
W bar = wage in urban
Wui = wage in urban informal

Question 19

What is the equilibrium in the Harris Todaro Model?

Answer 19

Wa = Lm/Lus (W bar M) + (1 - Lm/Lus) (Wui)

Basically if AGRI EXPECT WAGE = URBAN EXPECT WAGE INC INFORMAL THEN NO MOVE

We add Wui since it is above 0, being informal worker you still earn something.

Question 20

What is the Urban Employment Rate that stops Migration in Harris Todaro Model?

Answer 20

(1 - Lm/Lus) = W bar m - Wui / W bar m - Wui

Prob of not getting preferred formal wage

Question 21

What can be done to reduce the wage differentials between rural and urban that causes so much migration and urban unemployment? (POLICIES)

Answer 21

1. Address the urban bias
2. Address imbalance in expected income opportunities
3. Planned educational expansion in line with job creation opportunities
4. (Urban) wage subsidies and scarcity factor pricing can be counterproductive
5. Programs of integrated rural development should be encouraged.

Question 22

What are the implications of a min wage in Harris Todaro Model?

Answer 22

If set min wage in both rural and urban leave more unemployment

Question 23

What is the paradox of Job Creation? (Harris Todaro Model)? (Looking at policy if govt create more urban jobs)

Answer 23

• > More urban jobs equals = urban labour demand up shift right
• > Means level of informal workers down
• > Because of this prob of getting urban job increase and there is a new higher expected wage in urban = More migration

More migration = lower prob and lower expect wage
Go back to before (Migration > Soak Up Effect)

(see equation in notes)

Question 24

What are the implications of migration restrictions under Harris Todaro Model?

Answer 24

E.g. China Hukou System
Urban labour force stay at W bar but since migration restricted all the rest stuck taking agri job meaning wages decrease all the way to W min bar

• Those available to work in urban sector below efficient level

SEE GRAPH IN NOTES

Question 25

What are the implications of raising rural wages under Harris Todaro Model?

Answer 25

->To improve living conditions in rural areas and make agriculture a more profitable and labour-intensive business

-> Bazzi (2014) has shown that reducing the income gap through economic development
in the emitting countries might have ambiguous effect on migration.

Question 26

What are the implications of a urban sector wage subsidy under Harris Todaro Model?

Answer 26

Think Furlough

->Effective wage paid by employer is W bar- S(ubsidy) but worker gets paid at W bar.

->With cost per worker lower than agri wage, more supply of urban jobs.
But lead to some migration til equilbrium reached = No incentive to move since wages now equal in agri and urban (THIS IS LIKELY TO HAPPEN NOT GUARANTEED) -> Informal sector also gone (SOME INCENTIVE MAY STILL REMAIN)

But expensive and those who want to work in urban now above efficient level

SEE GRAPH IN NOTES

Question 27

What are the implications of combo of urban sector wage subsidy and migration under Harris Todaro Model?

Answer 27

Assume subsidy chosen so that Lf bar = Lf
Effective wage paid by employers at W* but employee gets W bar

Once Wa < W bar some incentive may still remain
Precise restriction can stop this

Urban Labour pool and Rural labour pool
are now at the efficient level.

SEE GRAPH IN NOTES

Question 28

What are the implications of combo of rural and urban sector wage subsidy under Harris Todaro Model?

Answer 28

Decreased cost to employers (in both Urban and Rural)
 Urban Informal sector shrinks
 But workers still receive 𝑤 bar(in urban) and flexible Wa
 As 𝑤a< 𝑤 bar there may still be incentive to migrate, till s is such that 𝑤𝐴 = 𝑤 bar

SEE GRAPHS IN NOTES (A repping not so perfect choice and B repping done to precision)