Low and middle income countries frequently have a substantial informal sector within large cities. In the tradition of the Harris-Todaro classical model of rural-urban migration I develop a two-sector general equilibrium model with matching frictions in the urban labor market which allows for migration between sectors. Having the wage as the driving force of migration I show that without further assumptions the Todaro paradox - a productivity increase in the urban sector that can cause an increase in unemployment - can be attained. The model also answers the problem - previously unexplained by Harris and Todaro - of why unemployed workers in the urban sector do not migrate back to the agricultural sector. Furthermore, I demonstrate that, in contrast to the existing literature, an efficient equilibrium will naturally result without government intervention.
Copyright is held by the author.
The author has not granted permission for the file to be printed nor for the text to be copied and pasted. If you would like a printable copy of this thesis, please contact firstname.lastname@example.org.
Member of collection