Question

ural Wage (in foad units) rban Wage (in foad units) 72 12 70 90 100 The graph drawn above is related to the Harris-Todaro model of rural to urban migration. The curve RR' is the demand curve for rural labor and the curve UU' is the demand curve for urban labor. These demand curves show the marginal productivity of labor on the vertical axis. The economy has 100 million urban and rural workers, who are looking for jobs. Assume that the labor markets are perfectly competitive. (i) Then what would be the rural as well as the urban wage rate (in food units) and how many people would be employed in the rural and urban sectors? Will there be full employment in the economy? (ii) Now assume that the wage rate in the urban sector get pushed up to 72 in food units due to institutional factors. Then how many will get employment in the urban sector? (iii) What would be the probability of getting an urban job? (iv) In the new migration equilibrium, what would be the rural wage rate and the size of rural employment? (v) Will the economy be in full employment? If not, how many workers will be unemployed? 1.

Answer 1

The graph drawn above is Harris-Todaro model of rural to urban migration. The curve RR'-Demand curve for rural labor The curve UU'-Demand curve for urban labor The economy has 100 million and rural workers. (i): Rural as well as urban wage rate will be 10 in food units and 70 million people will work in the rural sector and 30 million people will work in the urban sector. \r\n (ii) The urban sector get purchased up to 72 in food units due to institutional factors. 10 million employees will get employment in the urban sector. (iii) probability = 10/60 = 1/6 Hence, The probability of getting an urban job is '12' (iv) Rural wage = 1/6 times 72 = 12 (v): unemployment = 50 million workers.