The Harris–Todaro model, named after John R. Harris and Michael Todaro, is an economic model developed in 1970 and used in development economics and welfare economics to explain some of the issues concerning rural-urban migration. The main assumption of the model is that the migration decision is based on expected income differentials between rural and urban areas rather than just wage differentials. This implies that rural-urban migration in a context of high urban unemployment can be economically rational if expected urban income exceeds expected rural income. The classical theory is used in development economics and is an economic illustration of migrants’ decision on expected income differentials between rural (agriculture) and urban (manufacturing) areas. The model of rural-urban migration is typically studied in the context of employment and unemployment situations in developing countries. The purpose of the model is to explain the critical urban unemployment problem in developing countries. The key hypothesis of Harris and Todaro’s models that economic incentives, earnings differentials, and the probability of getting a job at the destination influence the migration decision.
Overview In the model, an equilibrium is reached when the expected wage in urban areas (actual wage adjusted for the unemployment rate), is equal to the marginal product of an agricultural worker. The model assumes that unemployment is non-existent in the rural agricultural sector. It is also assumed that rural agricultural production and the subsequent labor market are perfectly competitive. As a result, the agricultural rural wage is equal to agricultural marginal productivity. In equilibrium, the rural to urban migration rate will be zero since the expected rural income equals the expected urban income. However, in this equilibrium, there will be positive unemployment in the urban sector. The model explains internal migration in China as the regional income gap has been proved to be a primary driver of rural-urban migration, while urban unemployment is local governments’ main concern in many cities. In this paper, we developed an agent-based computational model which formalizes the rural-urban allocation of workers as a process of social learning by imitation. We analyze a two-sectorial economy composed of adaptative agents, i.e., individuals that grope overtime for a best sectorial location in terms of earnings. This search is a process of imitation of successful neighbor agents. The dispersed and non-coordinated individual migration decisions, made based on local information, generate aggregate regularities. Firstly, the crucial assumption of Harris and Todaro, the principle that rural-urban migration will occur while the urban expected wage exceeds the rural wage, comes out as a spontaneous upshot of interaction among adaptative agents. Secondly, the migratory dynamics generated by agents that seek to adapt to the economic environment that they co-create lead the economy toward a long-run equilibrium characterized by urban concentration with urban unemployment. When this long-run equilibrium is reached, the generalized Harris-Todaro condition is satisfied, i.e., there is a stabilization of the rural-urban expected wage differential. Thirdly, the impact of the minimum wage and elasticity of terms of trade in a long-run equilibrium obtained by simulations are in agreement with the predictions of the original Harris-Todaro model with Cobb-Douglas technology. Finally, the simulations showed an aggregated pattern not found in the original Harris-Todaro model. There is the possibility of small fluctuations of the urban share around an average value. This phenomenon is known as reverse migration.
Lewis-Fei-Ranis Model Prof. Lewis developed a very systematic theory of economic development with unlimited supplies of labor. The theory focuses on the structural transformation of a subsistence economy into a modern industrial economy. The theory was later modified by John Fei and Gustar Ranis in the 1950s. Lewis believes that in many undeveloped countries an unlimited supply of labor is available at a subsistence age. The Lewis two-sector model became the general theory of the development process in surplus-labor. Economic development takes place when capital accumulates as a result of the withdrawal of surplus labor from the subsistence sector to the modern sector (capitalist sector). In Lewis’s theory, the underdeveloped economy consists of two sectors. i. A traditional – overpopulated rural subsistence sector characterized by zero marginal labor productivity (surplus labor) which can be withdrawn from agriculture without any loss of output. ii. A high productivity modern urban industrial sector into which labor from the subsistence sector is gradually transferred. The primary focus of the model is on both the process of labor transfer and modern sector employment growth brought about by output expansion on that factor. • The speed at which this expansion occurs is determined by the rate of industrial investment and capital accumulation in the rec recent sector • Such investment is made possible by the excess of modern sector profits on the assumptions that capitalists all the, • . is assumed that wages in the modern sector are higher than in the subsistence sector.
Criticism of THE model The assumptions of this model do not fit the institutional and economic realities of most contemporary developing countries. 1. The model assumes that the rate of labor transfer and employment creation is proportional to the rate of modern sector capital accumulation. The faster the rate of capital accumulation, the higher the growth rate of the modern sector, and the faster the rate of new job creation. At times capitalists do not reinvest their profits +proportionately – capital flights. 2. The assumption of surplus labor in the rural areas might not hold seasonal 3. It is not always given that there is a tendency for increased urban wage rates. Institutional factors such as trade unions, bargaining power, service wage scales, and multi-national corporate tend to negate competitive forces in LDC’s modern sector, labor markets. 4. The concerns of diminishing returns in the modern industrial sector 5. Fei and Ranis assume a close model and hence there is no presence of foreign trade in the economy, which is very unrealistic as food or raw materials can not be imported. This theory concludes that for a country to develop there must be a balance between the agricultural and industrial sector, that labor can be utilized to get the efficient amount output in sectors, The theory has been used and tested by several countries namely England and japan labor, labor increasing,
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