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Eco. 361——–24-3-2021 (Online Discussion Quiz 1 —Lewis-Fei-Ranis Model of Economic Growth and Haris-Todaro Model of Migration)

Briefly discuss each of the following models and how they apply to the Nigerian Economy

  1. Lewis-Fei-Ranis Model of Economic Growth
  2. Haris-Todaro Model of Migration

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  1. The world is fortunate to have a person like you who is always there to help others.

  2. Being a help to me was a great gesture to you. Thank you so for your time.

  3. Avatar Ezeh Martha Kelechi, reg no:2017/244943, Education Economics says:

    The Harris – Todaro Theory
    This is a theory of rural-urban migration that is usually studied in the context of employment and unemployment in developing countries. The purpose of this model or theory is to explain the reason why there is seriously urban unemployment problem in developing countries. The model also is applicable only to less successful developing countries or to countries at their earlier stages of development. The difference in this model is that the rate of migration flow is mainly determined by the difference between expected urban wage which is no actual and rural wages. One disadvantages to this model is that job or work creation in urban sector worsens the situation in rural migration as many people will start moving to urban areas in terms of finding greener pastures.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.
    Assumptions of Harris – Todaro model
    1. The model is a study of migration of workers in two sectors economic system which are rural and urban sectors. The difference between these sectors are the type of goods produced, the technology of production and the process of wage determination. The rural sector is specialized in the production of agricultural goods while that of urban sector is specialized in manufactural goods. Both of these sectors can be described using Cobb-Douglas production function: Ya=AaNa
    2. Temporary Equilibrium
    3. Long Run Equilibrium
    My view
    Having studied Harris -Todaro model and knowing it as the theory of rural-urban migration of employment and unemployment of developing countries, it is necessary that both sectors are developed at same time so as to prevent the creation of unemployment in other sector. Once both are simultaneously develop, it will reduces the rate of unemployment in both sectors and there will be a moderate or balance of economic growth of the nation
    Conclusion
    Therefore migration from rural areas to urban areas will increase if:

    – Urban wages (wu) increase in the urban sector (le), increasing the expected urban income.
    -Agricultural productivity decreases, lowering marginal productivity and wages in the agricultural sector (wr), decreasing the expected rural income.
    However, even though this migration creates unemployment and induces informal sector growth, this behavior is economically rational and utility-maximizing in the context of the Harris–Todaro model. As long as the migrating economic agents have complete and accurate information concerning rural and urban wage rates and probabilities of obtaining employment, they will make an expected income-maximizing decision

    Lewis-Fei-Ranis Model(surplus of labour)
    The model is made up of three authors in whom Lewis is the chief proponent of the model. Lewis (1954) proposed a seminal theory of dualistic economic development for over-populated and under-developed economies with vast amounts of surplus agricultural labour for which he was later to be awarded the 1979 Nobel Prize in Economics. FeiRanis model of economic growth is a dualism model in developmental economics or welfare economics that has been developed by John C. H. Fei and Gustav Ranis and can be understood as an extension of the Lewis model. It is also known as the Surplus Labor model. It recognizes the presence of a dual economy comprising both the modern and the primitive sector and takes the economic situation of unemployment and underemployment of resources into account, unlike many other growth models that consider underdeveloped countries to be homogenous in nature. According to this theory, the primitive sector consists of the existing agricultural sector in the economy, and the modern sector is the rapidly emerging but small industrial. In the Lewis theory, an economy transits from the first, labour-surplus stage to the second, labour-scarce stage of development. Later, Ranis and Fei (1961) formalized the Lewis theory and defined three phases of dualistic economic development by sub-dividing the first stage in the Lewis model into two phases. Thus, the second labor-scarce stage of the Lewis model corresponds to phase three of the Ranis-Fei model. These three phases, illustrated in Diagram below, are distinguished by the marginal productivity of agricultural labor. The entry into each phase is marked three turning points: The breakout point leads to phase one growth with redundant agricultural labor. The shortage point leads to phase two growth with disguised agricultural unemployment. The commercialization point leads to phase three of self-sustaining economic growth with the commercialization of the agricultural sector.
    At the same time, growth in the agricultural sector must not be negligible and its output should be sufficient to support the whole economy with food and raw materials. Like in the HarrodDomar model, saving and investment become the driving forces when it comes to economic development of underdeveloped countries.

    Assumptions of the Lewis Model: Surplus Labour in the Subsistence Sectors

    The basic assumption of the model is that there exists surplus labour in the subsistence sectors. It includes labour whose marginal productivity is zero as well as that whose marginal productivity is positive but is less than the institutional wage. This labour comprises farmers, agricultural laborers, petty traders domestic servants and women.
    (1) The assumption that disguised unemployment exists in the agriculture sector has not been accepted by many economists. Schultz, Viner, Heberler and Hopper are a few of such economists. According to them, the production in the subsistence sector will be affected when labour is withdrawn from it.

    (2) Lewis ignored the cost involved in training the unskilled worker transferred from the subsistence sector. Even if it is obtained at a constant wage rate, so for as its transfer from the subsistence sector is concerned, the supply curve may slope upwards so far as the capitalist, sector is concerned if the cost of training rises as more and more labour is transferred.

    (3) When labour is transferred from the subsistence sector share of agricultural output falling to each one left in the agricultural sector will go a rising. This means the institutional wage will go on rising with every transfer and so will be the wages paid in the capitalist sector.

    (4) The model assumes that, besides labour, there is unlimited supply of entrepreneurs in the capitalist sector. This is not true in the case of many of the underdeveloped countries.

    (5) It is wrong to assume that a capitalist will always re-invest their profits. They are to indulge in un-productive pursuits. They can use their profits for speculative purposes.

    (6) It is also wrong to assume that landlords always squander away their savings. The role of landlords of Japan in industrialization of the country is well known.
    (7) The model assumes that there already exists a market for the industrial products in the country. This is wrong. People of an underdeveloped country may not be able to purchase the products perturbed by the expanding capitalist sector. Foreign markets, too, may not be available to the capitalist sector in the beginning.
    (8) Inflation is not liquidating, as has been assumed by Lewis, Experience of various, countries shows that if once prices start rising, it, becomes difficult to control them.
    (9) It is not easy to transfer labour from the subsistence Sector to the capitalist sector by offering them an incentive of a little higher wage.
    Mobility of labour is very low. Many factors like family affection, difference in language, caste, religion etc. affect it adversely.
    (10) Every underdeveloped country does not have surplus labour in the subsistence sector. As such, the model does not apply to countries which are sparsely populated.
    The only positive point in the model is its general emphasis on the role of saving in economic development and on the potential that overpopulated countries have in developing themselves with the help of surplus labour.

  4. Avatar Ugwu Kingsley ugochukwu says:

    Ugwu Kingsley ugochukwu
    2017/249585

    INTRODUCTION
    Fei–Ranis model of economic growth is a dualism model in developmental economics or welfare economics that has been developed by John C. H. Fei and Gustav Ranis and can be understood as an extension of the Lewis model. It is also known as the Surplus Labor model. It recognizes the presence of a dual economy comprising both the modern and the primitive sector and takes the economic situation of unemployment and underemployment of resources into account, unlike many other growth models that consider underdeveloped countries to be homogenous in nature. According to this theory, the primitive sector consists of the existing agricultural sector in the economy, and the modern sector is the rapidly emerging but small industrial sector. Both the sectors co-exist in the economy, wherein lies the crux of the development problem. Development can be brought about only by a complete shift in the focal point of progress from the agricultural to the industrial economy, such that there is augmentation of industrial output. This is done by transfer of labor from the agricultural sector to the industrial one, showing that underdeveloped countries do not suffer from constraints of labor supply. At the same time, growth in the agricultural sector must not be negligible and its output should be sufficient to support the whole economy with food and raw materials. Like in the Harrod–Domar model, saving and investment become the driving forces when it comes to economic development of underdeveloped countries.
    Basic of the model

    Depiction of Phase1, Phase2 and Phase3 of the dual economy model using average output.
    One of the biggest setbacks of the Lewis model was the undermining of the role of agriculture in boosting the growth of the industrial sector. In addition to that, he did not acknowledge that the increase in productivity of labor should take place prior to the labor shift between the two sectors. However, these two ideas were taken into account in the Fei–Ranis dual economy model of three growth stages. They further argue that the model lacks in the proper application of concentrated analysis to the change that takes place with agricultural development. In Phase 1 of the Fei–Ranis model, the elasticity of the agricultural labor work-force is infinite and as a result, suffers from disguised unemployment. Also, the marginal product of labor is zero. This phase is similar to the Lewis model. In Phase 2 of the model, the agricultural sector sees a rise in productivity and this leads to increased industrial growth such that a base for the next phase is prepared. In Phase 2, agricultural surplus may exist as the increasing average product (AP), higher than the marginal product (MP) and not equal to the subsistence level of wages.
    Using the figure above:
    Phase 1: AL (from figure) = MP = 0 and AB (from figure) = AP
    According to Fei and Ranis, AD amount of labor (see figure) can be shifted from the agricultural sector without any fall in output. Hence, it represents surplus labor.
    Phase 2: AP MP
    After AD, MP begins to rise, and industrial labor rises from zero to a value equal to AD. AP of agricultural labor is shown by BYZ and we see that this curve falls downward after AD. This fall in AP can be attributed to the fact that as agricultural laborers shift to the industrial sector, the real wage of industrial laborers decreases due to shortage of food supply, since less laborers are now working in the food sector. The decrease in the real wage level decreases the level of profits, and the size of surplus that could have been re-invested for more industrialization. However, as long as surplus exists, growth rate can still be increased without a fall in the rate of industrialization. This re-investment of surplus can be graphically visualized as the shifting of MP curve outwards. In Phase2 the level of disguised unemployment is given by AK. This allows the agricultural sector to give up a part of its labor-force until
    MP = Real wages = AB = Constant institutional wages (CIW)
    Phase 3 begins from the point of commercialization which is at K in the Figure. This is the point where the economy becomes completely commercialized in the absence of disguised unemployment. The supply curve of labor in Phase 3 is steeper and both the sectors start bidding equally for labor.

    Phase 3: MP CIW
    The amount of labor that is shifted and the time that this shifting takes depends upon:
    1. The growth of surplus generated within the agricultural sector, and the growth of industrial capital stock dependent on the growth of industrial profits
    2. The nature of the industry’s technical progress and its associated bias
    3. Growth rate of population.
    So, the three fundamental ideas used in this model are:
    1. Agricultural growth and industrial growth are both equally important
    2. Agricultural growth and industrial growth are balanced;
    3. Only if the rate at which labor is shifted from the agricultural to the industrial sector is greater than the rate of growth of population will the economy be able to lift itself up from the Malthusian population trap.
    However, this shifting of labor can take place by the landlords’ investment activities and by the government’s fiscal measures. However, the cost of shifting labor in terms of both private and social cost may be high, for example transportation cost or the cost of carrying out construction of buildings. In addition to that, per capita agricultural consumption can increase, or there can exist a wide gap between the wages of the urban and the rural people. These three occurrences- high cost, high consumption and high gap in wages, are called as leakages, and leakages prevent the creation of agricultural surplus. In fact, surplus generation might be prevented due to a backward-sloping supply curve of labor as well, which happens when high income-levels are not consumed. This would mean that the productivity of laborers with rise in income will not rise. However, the case of backward-sloping curves is mostly unpractical.

    ASSUMPTIONS OF THE LEWIS MODEL
    (A). Surplus Labour in the Subsistence Sectors:
    The basic assumption of the model is that there exists surplus labour in the subsistence sectors. It includes labour whose marginal productivity is zero as well as that whose marginal productivity is positive but is less than the institutional wage. This labour comprises farmers, agricultural laborers, petty traders’ domestic servants and women.
    The surplus labour in the agriculture sector acts as a source of unlimited supply of labour for the manufacturing sector. By unlimited supply of labour. Lewis means that the supply of labour is perfectly elastic at a particular wage. This particular wage is somewhat higher than the institutional wage which each worker in the agricultural sector gets.
    Lewis calls it as institutional wage because every worker gets this wage because of some institutional arrangements. This wages is equal to an average share of each worker in the total output in the subsistence sector. If market forces were allowed to operate in the subsistence sector labourers with zero margin productivity or those with a very low marginal productivity would not have received this wage.
    (B). Importance of Saving:
    Another important assumption that Lewis makes is about the savings generated in the capitalist sector and in the subsistence sector. The capitalist sector invests its entire savings for its further expansion.
    Those in the subsistence sector, on the other hand squander away their savings, if any in purchase of jewellery and for construction of temples etc. The propensity to save of the people in subsistence sector is also lower when compared with that of those in the capitalist sector.
    Lewis in fact so much fascinated by the higher propensity to save of the capitalist sector that he even advocates a transfer of income from the subsistence sector to the capitalist sector. He feels that steps have to be taken to raise the rate of savings from 10% to 15% if the development of the economy has to be smooth.
    CRITICISM OF THE MODEL
    1. The assumption that disguised unemployment exists in the agriculture sector has not been accepted by many economists. Schultz, Viner, Heberler and Hopper are few of such economists. According to them, the production in the subsistence sector will be affected when labour is withdrawn from it.
    2. Lewis ignored the cost involved in training the unskilled worker transferred from the subsistence sector. Even if it is obtained at a constant wage rate, so for as its transfer from the subsistence sector is concerned, the supply curve may slope upwards so far as the capitalist, sector is concerned if the cost of training rises as more and more labour is transferred.
    3. When labour is transferred from the subsistence sector share of agricultural output falling to each one left in the agricultural sector will go a rising. This means the institutional wage will go on rising with every transfer and so will be the wages paid in the capitalist sector.
    4. The model assumes that, besides labour, there is unlimited supply of entrepreneurs in the capitalist sector. This is not true in the case of many of the underdeveloped countries.
    5. It is wrong to assume that a capitalist will always re-invest their profits. They too can indulge in un-productive pursuits. They can use their profits for speculative purposes.
    6. It is also wrong to assume that landlords always squander away their savings. The role of landlords of Japan in industrialization of the country is well known.
    7. The model assumes that there already exists a market for the industrial products in the country. This is wrong. People of an underdeveloped country may not be able to purchase the products perturbed by the expanding capitalist sector. Foreign markets, too, may not be available to the capitalist sector in the beginning.
    8. Inflation is not liquidating, as has been assumed by Lewis, Experience of various, countries shows that if once prices start rising, it becomes difficult to control them.
    9. It is not easy to transfer labour from the subsistence Sector to the capitalist sector by offering them an incentive of a little higher wage. Mobility of labour is very low. Many factors like family affection, difference in language, caste, religion etc. affect it adversely.
    10. Every underdeveloped country does not have surplus labour in the subsistence sector. As such, the model does not apply to countries which are sparsely populated.
    The only positive point in the model is its ‘general’ emphasis on the role of saving in economic development and on the potential that overpopulated countries have in developing themselves with the help of surplus labour.
    CONCLUSION
    This model divides the economy in an underdeveloped country in two sectors which are the Subsistence sector and the capitalist sector. Subsistence sector is identified with the agricultural sector of the economy while the capitalist sector implies mainly the manufacturing sector of the economy. Capitalist sector also includes plantations and mining where hired labour is employed for purposes of production. The capitalist sector can either be private or public in nature. Subsistence sector, that the agricultural sector is considered to be labour intensive. It does not use reproducible capital. It uses poor techniques of production and has very low productivity. Therefore, when the subsistence (rural area) sector produces, its sent it surplus to the capitalist sector (urban area) for further production. This can provide employment in both sectors when more workers are employed in the subsistence sector so as to produce more agricultural surplus which will also lead to increase in labour in the capitalist sector. In my opinion this can work in real life if there is a limited number of labour that migrate from the rural area to the urban area.

  5. Avatar Chukwudi Christopher says:

    Name: Chukwudi Christopher
    Reg Number: 2017/249489
    Dept: Economics

    LEWIS-FEI-RANIS MODEL
    Prof. Lewis developed a very systematic theory of economic development with unlimited
    supplies of labour. The theory focuses on 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 labour is available at a subsistence age. The Lewis two-sector model became the general theory of development process in surplus labour. Economic development takes place when capital accumulates as a result of withdrawal of surplus labour from the subsistence sector to the modern sector (capitalist sector). In the Lewis theory the underdeveloped economy consist of two sectors. i. A traditional – over populated rural subsistence sector characterized by zero marginal labour productivity (surplus labour) which can be withdrawn from agriculture without any loss of output. ii. A high productivity modern urban industrial sector into which labour from the subsistence sector is gradually transferred. The primary focus of the model is on both the process of labour 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 modern sector
    • Such investment is made possible by the excess of modern sector profits on the assumptions that capitalists invests all the profits.
    • It is assumed that wages in the modern sector are higher than in the subsistence sector.

    Depiction of Phase1, Phase2 and Phase3 of the dual economy model using average output.

    One of the biggest drawbacks of the Lewis model was the undermining of the role of agriculture in boosting the growth of the industrial sector. In addition to that, he did not acknowledge that the increase in productivity of labor should take place prior to the labor shift between the two sectors. However, these two ideas were taken into account in the Fei–Ranis dual economy model of three growth stages.[4] They further argue that the model lacks in the proper application of concentrated analysis to the change that takes place with agricultural development[5] In Phase 1 of the Fei–Ranis model, the elasticity of the agricultural labor work-force is infinite and as a result, suffers from disguised unemployment. Also, the marginal product of labor is zero. This phase is similar to the Lewis model. In Phase 2 of the model, the agricultural sector sees a rise in productivity and this leads to increased industrial growth such that a base for the next phase is prepared. In Phase 2, agricultural surplus may exist as the increasing average product (AP), higher than the marginal product (MP) and not equal to the subsistence level of wages. Using the help of the figure on the left, we see that
    Phase 1: AL = MP
    According to Fei and Ranis, AD amount of labor (see figure) can be shifted from the agricultural sector without any fall in output. Hence, it represents surplus labour
    PHASE 2: AP > MP

    After AD, MP begins to rise, and industrial labor rises from zero to a value equal to AD. AP of agricultural labor is shown by BYZ and we see that this curve falls downward after AD. This fall in AP can be attributed to the fact that as agricultural laborers shift to the industrial sector, the real wage of industrial laborers decreases due to shortage of food supply, since less laborers are now working in the food sector. The decrease in the real wage level decreases the level of profits, and the size of surplus that could have been re-invested for more industrialization. However, as long as surplus exists, growth rate can still be increased without a fall in the rate of industrialization. This re-investment of surplus can be graphically visualized as the shifting of MP curve outwards. In Phase2 the level of disguised unemployment is given by AK. This allows the agricultural sector to give up a part of its labor-force until
    MP = REAL WAGE = MP = CONSTANT
    Phase 3 begins from the point of commercialization which is at K in the Figure. This is the point where the economy becomes completely commercialized in the absence of disguised unemployment. The supply curve of labor in Phase 3 is steeper and both the sectors start bidding equally for labor.
    PHASE 3: MP = CIW
    (I) The amount of labor that is shifted and the time that this shifting takes depends upon:The growth of surplus generated within the agricultural sector, and the growth of industrial capital stock dependent on the growth of industrial profits;
    (III)The nature of the industry’s technical progress and its associated bias;
    (III)Growth rate of population.
    So, the three fundamental ideas used in this model are:
    1) Agricultural growth and industrial growth are both equally important;
    2) Agricultural growth and industrial growth are balanced;
    3) Only if the rate at which labor is shifted from the agricultural to the industrial sector is greater than the rate of growth of population will the economy be able to lift itself up from the Malthusian population trap.
    This shifting of labor can take place by the landlords’ investment activities and by the government’s fiscal measures. However, the cost of shifting labor in terms of both private and social cost may be high, for example transportation cost or the cost of carrying out construction of buildings. In addition to that, per capita agricultural consumption can increase, or there can exist a wide gap between the wages of the urban and the rural people. These three occurrences- high cost, high consumption and high gap in wages, are called as leakages, and leakages prevent the creation of agricultural surplus. In fact, surplus generation might be prevented due to a backward-sloping supply curve of labor as well, which happens when high income-levels are not consumed. This would mean that the productivity of laborers with rise in income will not rise. However, the case of backward-sloping curves is mostly unpractical.
    THE AGRICULTURAL SECTOR
    Fei and Ranis emphasized strongly on the industry-agriculture interdependency and said that a robust connectivity between the two would encourage and speedup development. If agricultural laborers look for industrial employment, and industrialists employ more workers by use of larger capital good stock and labor-intensive technology, this connectivity can work between the industrial and agricultural sector. Also, if the surplus owner invests in that section of industrial sector that is close to soil and is in known surroundings, he will most probably choose that productivity out of which future savings can be channelized. They took the example of Japan’s dualistic economy in the 19th century and said that connectivity between the two sectors of Japan was heightened due to the presence of a decentralized rural industry which was often linked to urban production. According to them, economic progress is achieved in dualistic economies of underdeveloped countries through the work of a small number of entrepreneurs who have access to land and decision-making powers and use industrial capital and consumer goods for agricultural practices.
    In (A), land is measured on the vertical axis, and labor on the horizontal axis. Ou and Ov represent two ridge lines, and the production contour lines are depicted by M, M1 and M2. The area enclosed by the ridge lines defines the region of factor substitutability, or the region where factors can easily be substituted. Let us understand the repercussions of this. If the amount of labor is the total labor in the agricultural sector, the intersection of the ridge line Ov with the production curve M1 at point s renders M1 perfectly horizontal below Ov. The horizontal behavior of the production line implies that outside the region of factor substitutability, output stops and labor becomes redundant once land is fixed and labor is increased

    INDUSTRIAL SECTOR

    Like in the agricultural sector, Fei and Ranis assume constant returns to scale in the industrial sector. However, the main factors of production are capital and labor. In the graph (A) right hand side, the production functions have been plotted taking labor on the horizontal axis and capital on the vertical axis. The expansion path of the industrial sector is given by the line OAoA1A2. As capital increases from Ko to K1 to K2 and labor increases from Lo to L1 and L2, the industrial output represented by the production contour Ao, A1 and A3 increases accordingly.

    According to this model, the prime labor supply source of the industrial sector is the agricultural sector, due to redundancy in the agricultural labor force. (B) shows the labor supply curve for the industrial sector S. PP2 represents the straight line part of the curve and is a measure of the redundant agricultural labor force on a graph with industrial labor force on the horizontal axis and output/real wage on the vertical axis. Due to the redundant agricultural labor force, the real wages remain constant but once the curve starts sloping upwards from point P2, the upward sloping indicates that additional labor would be supplied only with a corresponding rise in the real wages level.
    MPPL curves corresponding to their respective capital and labor levels have been drawn as Mo, M1, M2 and M3. When capital stock rises from Ko to K1, the marginal physical productivity of labor rises from Mo to M1. When capital stock is Ko, the MPPL curve cuts the labor supply curve at equilibrium point Po. At this point, the total real wage income is Wo and is represented by the shaded area POLoPo. λ is the equilibrium profit and is represented by the shaded area qPPo. Since the laborers have extremely low income-levels, they barely save from that income and hence industrial profits (πo) become the prime source of investment funds in the industrial sector.

    Here, Kt gives the total supply of investment funds (given that rural savings are represented by So)
    Total industrial activity rises due to increase in the total supply of investment funds, leading to increased industrial employment.
    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 labour 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 labour in the rural areas might not hold seasonal
    3. It is not always given that there is the tendency of 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 LDCs modern sector, labour 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 developed there must be balance between the agricultural and industrial sector, that labour can be utilized to get the efficient amount of output in both sectors, The theory has been used and tested by several countries namely England and japan

    The Harris-Todaro Model
    This model of economic development was developed by J. R. Harris and M. P. Todaro which is relevant for labour surplus countries like India. It is the best known model of internal migration in the context of present-day developing countries. The model has focused on migration of labour from rural to urban areas induced by certain incentives. They have referred to two types of migration—induced migration and internal migration. In the Harris-Todaro model, the probability of obtaining an urban job is defined as the number of urban jobs divided by the urban labor force. Implicitly, this specification assumes that persons living in rural areas have no chance whatever of finding urban job.
    Harris-Todaro Model is bounded by the following assumptions:
    • Two sectors: urban (manufacture) and rural (agriculture)
    • Rural-urban migration condition: when urban real wage exceeds real agricultural product• No migration cost: there is little to no cost on migrating from one sector to another.• Perfect competition in the two sectors: Both the agricultural and manufacturing sectors are perfectly competitive in nature.
    • Cobb-Douglas production function
    • Static approach• Low risk aversion: the Migrants are not risk averse. That is, they are risk takers.
    Under the Harris-Todaro Model, the decision to migrate is made upon differences in expected income between rural and urban areas. On a fundamental level, expected income accounts for the wage differential between urban and rural areas. The existence of a higher wage in urban areas compared to rural areas is a relatively constant observation. Rural to urban migration, however, does not clear the wage differential between the two labor markets as designated by demand and supply fundamentals. The reason for this is the lack of full employment in urban areas. The probability of finding a job in an urban area (i.e. the inverse of the unemployment rate) is never 100%. In other words, the urban labor market never fully clears due to institutionally determined urban wages; there will always be unemployment. This provides a technical rational to the reason why there is rural to urban migration amidst unemployment.

    Lewis-Fei-Ranis model recognizes the presence of a dual economy comprising both the modern and the primitive sector and takes the economic situation of unemployment and underemployment of resources into account, unlike many other growth models that consider underdeveloped countries to be homogenous in nature. According to this theory, the primitive sector consists of the existing agricultural sector in the economy, and the modern sector is the rapidly emerging but small industrial sector. Both the sectors co-exist in the economy, wherein lies the crux of the development problem. Development can be brought about only by a complete shift in the focal point of progress from the agricultural to the industrial economy, such that there is augmentation of industrial output. This is done by transfer of labor from the agricultural sector to the industrial one, showing that underdeveloped countries do not suffer from constraints of labor supply. At the same time, growth in the agricultural sector must not be negligible and its output should be sufficient to support the whole economy with food and raw materials. Like in the Harrod–Domar model, saving and investment become the driving forces when it comes to economic development of underdeveloped countries
    .

  6. Avatar Ezeah ugochukwu levi says:

    LEWIS -FEI-RANIS THEORY(SURPLUS LABOUR THEORY)
    Lewis (1954) proposed a seminal theory of dualistic economic development for over-populated and under-developed economies with vast amounts of surplus agricultural labour for which he was later to be awarded the 1979 Nobel Prize in Economics. Economic growth in such an economy can be achieved by rapid capital accumulation in the non-agricultural (industrial and service) sector, facilitated by drawing surplus labour in the agricultural sector. In the Lewis theory, an economy transits from the first, labour-surplus “stage” to the second, labour-scarce “stage” of development.The central idea behind the Lewis model is fairly simple. Lewis divided labour force into two differentiated groups – “subsistence sector” and “capitalist sector” where the former is assumed to contain unlimited supply and consequently, a pool of surplus labour that sets labour-supply conditions for the latter.
    Assumptions of the Lewis Model
    (A) Surplus Labour in the Subsistence Sectors:
    The basic assumption of the model is that there exists surplus labour in the subsistence sectors. It includes labour whose marginal productivity is zero as well as that whose marginal productivity is positive but is less than the institutional wage. This labour comprises farmers, agricultural labourers, petty traders domestic servants and women.
    (B) Importance of Saving:
    Another important assumption that Lewis makes is about the savings generated in the laissez faire sector and in the subsistence sector. The laissez faire sector invests all its savings for its further expansion. The propensity to save of the people in subsistence sector is also lower when compared with that of those in the capitalist sector.
    The Fei–Ranis model of economic growth is a dualism model in developmental economics or welfare economics that has been developed by John C. H. Fei and Gustav Ranis and can be understood as an extension of the Lewis model. It is also known as the Surplus Labor model.It recognizes the presence of a dual economy comprising both the modern and the primitive sector and takes the economic situation of unemployment and underemployment of resources into account, unlike many other growth models that consider underdeveloped countries to be homogenous in nature. According to this theory, the primitive sector consists of the existing agricultural sector in the economy, and the modern sector is the rapidly emerging but small industrial sector. Both the sectors co-exist in the economy, wherein lies the crux of the development problem. Development can be brought about only by a complete shift in the focal point of progress from the agricultural to the industrial economy, such that there is augmentation of industrial output. This is done by transfer of labor from the agricultural sector to the industrial one, showing that underdeveloped countries do not suffer from constraints of labor supply. At the same time, growth in the agricultural sector must not be negligible and its output should be sufficient to support the whole economy with food and raw materials. Like in the Harrod–Domar model, saving and investment become the driving forces when it comes to economic development of underdeveloped countries.Ranis and Fei (1961) formalised the Lewis theory and defined three “phases” of dualistic economic development by sub-dividing the first stage in the Lewis model into two phases. Thus, the second labour-scarce stage of the Lewis model corresponds to phase three of the Ranis-Fei model. These three phases, illustrated in Diagram 1below, are distinguished by the marginal productivity of agricultural labour. The entry into each phase is marked three turning points:
    • The breakout point leads to phase one growth with redundant agricultural labour.
    • The shortage point leads to phase two growth with disguised agricultural unemployment.
    • The commercialisation point leads to phase three of self-sustaining economic growth with the commercialisation of the agricultural sector.One of the biggest drawbacks of the Lewis model was the undermining of the role of agriculture in boosting the growth of the industrial sector. In addition to that, he did not acknowledge that the increase in productivity of labor should take place prior to the labor shift between the two sectors. However, these two ideas were taken into account in the Fei–Ranis dual economy model of three growth stages.They further argue that the model lacks in the proper application of concentrated analysis to the change that takes place with agricultural development.
    Under competitive assumptions, the real wage rate would fall to zero, but due to the presence of institutional or non-market forces, the institutional wage is sustained. Therefore, there are gains to be had by switching resources away to the industrial sector. Nevertheless, it is generally not likely to happen because the market, left on its own, does not change. If the industrial sector does pay according to marginal product, then, as noted by Ray (1998), there would efficiency gains available as long as the marginal product of the agricultural labour is Gless than the wage, whether it is zero or not. By decreasing the labour force in agriculture by a small amount (whilst still remaining in the surplus labour area), provided that the wage in agriculture does not rise. Since output does not fall, the reduction in the total wage bill gives an economy an agricultural surplus.

    RELATING THE MODEL TO NIGERIA ECONOMY
    Nigeria has both rural and urban sectors that provide for each forward and backward linkages and as such, the two sectors are not mutually exclusive in promoting the economic growth of the country and improving the standard of living of citizens. However, the Federal Government of Nigeria does not necessarily have to move surplus labour that exists in the rural areas to the urban areas but instead infrastructural facilities should be provided equally to both the rural and urban areas of the country.

    HARRIS-TODARO THEORY OF MIGRATION

    The Harris–Todaro model, named after John R. Harris and Michael Todaro, is an model developed in 1970 and used in development economics and welfare economics to explain some of the issues concerning rural-urban migration.
    The key hypothesis of Harris and Todaro are that migrants react mainly to economic incentives, earnings differentials, and the probability of getting a job at the destination have influence on the migraton decision. In other words, these authors posit that rural-urban migration will occur while the urban expected wage exceed the rural wage. From this crucial assumption as denominated by Harris-Todaro , is deduced that the migratory dynamics leads the economic system toward an equilibrium with urban concentration and high urban unemployment.

    ASSUMPTIONS OF THE MODEL
    i. Two sectors: urban (manufacture) and rural (agriculture)
    ii. Rural-urban migration condition: when urban real wage exceeds real agricultural product
    iii.No migration cost
    iv. Perfect competition
    e. Cobb-Douglas production function.

    RELATING THE MODEL TO NIGERIA’S ECONOMY
    In cases of pro-poor economic growth, the Harris-Todaro model and other multisector-labor-market models can help policy makers avoid two mistakes. One is to assume that development efforts should be channeled to the sectors where the poor are. The other is to assume that efforts should always be focused on getting the poor out of the sectors in which they now are.

  7. Avatar Okonkwo Okechukwu Benjamin says:

    Okonkwo okechukwu Benjamin
    Economics
    2017/251833

    Two Economists, John E. H Fei and Gustav Ranis, developed the model now known as the Fei-Ranis model of dual economy to explain how an increased productivity in agricultural sector would become helpful in promoting industrial sector, due to the fact that Lewis model did not pay enough attention to the importance of agricultural sector in promoting industrial growth.
    The above model provides three stages whereby an Under Developed Country can move from stagnation to self-sustained economic growth. This model I treated as an improvement over Lewis model of Unlimited Supply of Labour.
    The Assumptions of the Model
    There is abundance of labour in such Under Developed Countries and shortage of Natural Resources.
    The population growth rates are very high which results in Mass Unemployment in the Economy.
    Agricultural sector generates surplus to finance the development of industrial sector.
    The model is based on a closed economy unlike the Lewis model that is based on both Closed and open economy.
    There is dynamic industrial sector in the Economy.
    According to them, the Central problem of dual economy is transfer of labour from agricultural to non-agricultural sector.
    The main social problem is over-population.
    Industrial workers absorb the maximum number of agriculture workers.
    The population rate is very high which results in Mass Unemployment in the Economy.
    The major share of population is engaged in Agriculture. But agriculture sector is stagnant, hence, the marginal productivity of labour is zero and negative in agricultural sector.

    The Model therefore suggests that Economic development would be taking place if agricultural labourers are transferred to industrial sector where their productivity will increase.
    Honestly, the model is about a stagnant agricultural sector and dynamic industrial sector. The situation where Marginal Productivity of Labour is equal to zero i.e. (MPL)=0, labour can be transferred to industrial sector without any loss in agricultural output. Thus; the real wages in Industrial Sector remains fixed and it is equal to the initial level of real income in agricultural sector. Such wages are given the name of institutional wages.

  8. Avatar Ezenabo, Chinonso Emmanuel... 2017/241447 says:

    Due to the fact that Lewis model did not pay enough attention to the importance of agricultural sector in promoting industrial growth, two Economists, John E. H Fei and Gustav Ranis, developed the model now known as the Fei-Ranis model of dual economy to explain how an increased productivity in agricultural sector would become helpful in promoting industrial sector.
    In respect to this, it presents three stages whereby an Under Developed Country can move from stagnation to self-sustained economic growth. This model I treated as an improvement over Lewis model of Unlimited Supply of Labour.
    The Assumptions of the Model
    There is abundance of labour in such Under Developed Countries and shortage of Natural Resources.
    The population growth rates are very high which results in Mass Unemployment in the Economy.
    Agricultural sector generates surplus to finance the development of industrial sector.
    The model is based on a closed economy unlike the Lewis model that is based on both Closed and open economy.
    There is dynamic industrial sector in the Economy.
    According to them, the Central problem of dual economy is transfer of labour from agricultural to non-agricultural sector.
    The main social problem is over-population.
    Industrial workers absorb the maximum number of agriculture workers.
    The population rate is very high which results in Mass Unemployment in the Economy.
    The major share of population is engaged in Agriculture. But agriculture sector is stagnant, hence, the marginal productivity of labour is zero and negative in agricultural sector.

    The Model therefore suggests that Economic development would be taking place if agricultural labourers are transferred to industrial sector where their productivity will increase.
    As we know, the model is about a stagnant agricultural sector and dynamic industrial sector. The situation where Marginal Productivity of Labour is equal to zero i.e. (MPL)=0, labour can be transferred to industrial sector without any loss in agricultural output. Thus; the real wages in Industrial Sector remains fixed and it is equal to the initial level of real income in agricultural sector. Such wages are given the name of institutional wages.

  9. Avatar Okonkwo Okechukwu Benjamin says:

    Two Economists, John E. H Fei and Gustav Ranis, developed the model now known as the Fei-Ranis model of dual economy to explain how an increased productivity in agricultural sector would become helpful in promoting industrial sector, due to the fact that Lewis model did not pay enough attention to the importance of agricultural sector in promoting industrial growth.
    The above model provides three stages whereby an Under Developed Country can move from stagnation to self-sustained economic growth. This model I treated as an improvement over Lewis model of Unlimited Supply of Labour.
    The Assumptions of the Model
    There is abundance of labour in such Under Developed Countries and shortage of Natural Resources.
    The population growth rates are very high which results in Mass Unemployment in the Economy.
    Agricultural sector generates surplus to finance the development of industrial sector.
    The model is based on a closed economy unlike the Lewis model that is based on both Closed and open economy.
    There is dynamic industrial sector in the Economy.
    According to them, the Central problem of dual economy is transfer of labour from agricultural to non-agricultural sector.
    The main social problem is over-population.
    Industrial workers absorb the maximum number of agriculture workers.
    The population rate is very high which results in Mass Unemployment in the Economy.
    The major share of population is engaged in Agriculture. But agriculture sector is stagnant, hence, the marginal productivity of labour is zero and negative in agricultural sector.

    The Model therefore suggests that Economic development would be taking place if agricultural labourers are transferred to industrial sector where their productivity will increase.
    Honestly, the model is about a stagnant agricultural sector and dynamic industrial sector. The situation where Marginal Productivity of Labour is equal to zero i.e. (MPL)=0, labour can be transferred to industrial sector without any loss in agricultural output. Thus; the real wages in Industrial Sector remains fixed and it is equal to the initial level of real income in agricultural sector. Such wages are given the name of institutional wages.

  10. Avatar Ugwoke Cornelius Esomchi says:

    Ugwoke Cornelius Esomchi
    2017/249581

    Economic Growth

    One of the best known early theoretical models of development that focused on the structural transformation of a primarily subsistence economy was that formulated by Nobel Laureate W. Arthur Lewis in the mid-1950s, and later modified, formalized, and extended by John Fei and Gustav Ranis. The Lewis two-sector model became the general theory of the 1960s and early 1970s, and it is sometimes still applied, particularly to study the recent growth experience in China and labor markets in other developing countries.
    The Fei-Ranis model is an improvement over the lewis model. John Fei and Gustav Ranis analyze the transition process through which an underdeveloped economy hopes to move from a condition of stagnation to one of self-sustained growth.
    The theory relates to underdeveloped labor surplus and resources; poor economy in which the vast majority of the population is engaged in agriculture amidst widespread unemployment and high rates of population growth.

    ASSUMPTIONS OF THE MODEL

    1. There is a dual economy divided into a traditional and stagnant agricultural sector and an active industrial sector.
    2. The output of the agricultural sector is a function of land and labor alone.
    3. There is no accumulation of capital in agriculture except in the form of land reclamation.
    4. Land is fixed in supply.
    5. Population growth is taken as an exogenous phenomenon.
    The real wage in the industrial sector remains fixed and is equal to the initial level of real income in the agricultural sector. It is called an institutional wage.
    6. Workers in either sector consume only agricultural products.
    Given these assumptions, Fei and Ranis analyze the development of a labor surplus economy into three phases;
    In the first phase, the disguised unemployed workers who are not adding to agricultural output are transferred to the industrial sector at a constant institutional wage.
    In the second phase, agricultural workers add to agricultural output but produce less than the institutional wage they get. Such workers are shifted to the industrial sector. If the migration of the workers to the industrial sector continues, a point is eventually reached when farmworkers produce output equal to the institutional wage.
    In the third phase, which makes the end of the take-of and the beginning of the self-sustained growth when farmworkers produce more than the institutional wage they get. In this phase, the surplus labor is exhausted and the agricultural sector becomes commercialized.

    . HARRIS-TODARO AGENT-BASED MODEL

    In this section we describe the implementation of the computational model we proposed, as well as the aggregate patterns obtained numerically and the comparison with the respective analytical results.

    A. Computational Implementation

    Initially, workers are randomly placed in a square lattice with linear dimension L = 500. The reference values of the parameters used for these simulations are the same done to evaluate the equilibrium of the Harris-Todaro model, namely, Aa = 1.0, Am = 1.0, f = 0.3, a = 0.7, r = 1.0 and g = 1.0. The value of the minimum wage used is wm = 0.8 and the initial urban fraction of the total population is nu = 0.2, where nu = Nu/N is the normalized urban population also called urban share. The initial value nu = 0.2 is in agreement with historical data of developing economies. Given these parameters, one can calculate the vector which characterizes temporary equilibrium of the system by using eqs. (7 – 12).

    By using eq. (7), the employment level of the urban sector, Nm, is obtained. If nu Nm/N there will be a fraction of Nm/Nu workers employed, which earn the minimum wage, wi = wm, and (1-Nm/Nu) workers unemployed, which earn a wage wi = 0.

    Each worker can be selected to review his sectorial location with probability a, called activity . Therefore, in each time step only a fraction of workers becomes potential migrants, going through the sectorial location reviewing process. Potential migrants will determine their satisfaction level of being in the current sector by comparing their earnings, wi, among nearest neighbors.

    The potential migrant starts the comparison process with a initial satisfaction level si = 0. When wi > wneighbor the satisfaction level si is added in one unit; if wi < wneighbor, si is diminished in one unit; if wi = wneighbor, si does not change. After the worker has passed through the reviewing process his/her satisfaction level is checked. The migration will occur only if si < 0, what means that the worker's i earnings is less than the most of his/her nearest neighbors.

    After all the potential migrants complete the reviewing process and have decided migrate or not, a new configuration of the system is set. Therefore, once again a new temporary equilibrium of the system is calculated by using eqs. (8 – 12). The whole procedure is repeated until a pre-set number of steps is reached. It is important to emphasize that Nm is kept constant throughout the simulation. Its given by eq. (7) which depends on the technological parameters, a,Am, and the minimum wage, wm, which are constants too.

    B. Analysis of the Emergent Properties

    In this section we develop the analysis of the long run aggregate regularities of Harris-Todaro agent-based computational model. These long run properties will be compared between the solution of the analytical model and simulations.

    show the basic characteristics of the transitional dynamics and long run equilibrium generated by simulations. When the economic system has a low initial urban share, nu = 0:2 or nu = 0:3, there is a net migration toward urban sector. This migration takes the urban sector from a full employment situation to an unemployment one. The positive differential of expected wages that pulls workers to the urban sector diminishes. However, if the economic system initiates with a high urban share, nu = 0:8, or nu = 0:9 there is net flow of migration toward rural sector in such a way that the unemployment rate of the urban sector decreases

    In this case, the differential of expected wages is negative. In an economy mainly rural (nu < 0:5), the transitional dynamics characterized by a continuous growth of population of the urban sector with a differential of expected wages relatively high is followed by the stabilization of rural-urban differential of expected wages. In other words, the generalized Harris-Todaro condition, eq. (15), arises as a long run equilibrium result of the agent-based migratory dynamics.

    Figure 3 also shows that even after the urban share has reached an stable average value, there are small fluctuations around this average. Therefore, differently from the original Harris-Todaro model, our computational model shows in the long run equilibrium the reverse migration. This phenomenon has been observed in developing countries.
    for a given value of a, the variation of wm practically does not change the equilibrium values of the urban share, the differential of expected wages and the unemployment rate. However, for a given wm, higher values of a make the urban sector less attractive due the reduction of the employment level. This causes a lower equilibrium urban share, a higher unemployment rate and a gap in the convergence of the expected wages.

    The equilibrium values of the urban share, the differential of expected wages and unemployment rate do not have a strong dependence with wm. However, variations in g for a fixedwm, dramatically change the equilibrium values of the variable mentioned before. Higher values of g generate a lower urban concentration, a higher gap in the expected wages and a higher unemployment rate in the equilibrium.
    The convergence of migratory dynamics for a urban share, compatible with historical data, is robust in relation to the variation of the key technological parameters, a and f. The impact of the variation of these parameters in the values of the equilibrium differential of expected wages, ( – wa), and the equilibrium urban unemployment rate, (1-Nm=Nu).

    CONCLUSION

    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 exceed the rural wage, comes out as spontaneous upshot of interaction among adaptative agents.

  11. Avatar Ahamefula miracle chisom says:

    Name: Ahamefula miracle Chisom
    Reg no: 2017/249478
    Dept Economics
    Level:300 level
    Email: ahamefulamiracle1@gmail

    Lewis Fei Ranis model of economic development

    After a long experience of military dictatorship, civilian rule in 1999 brought high expectations for peace and progress. However, democracy has failed so far to deliver good governance and in its place, insecurity, poverty, economic crisis and social problems have become the fate of Nigerians. The liberalization of the political atmosphere in 1999 brought by civil rule was used for the mobilization of primordial sentiments and identity politics (Alubo 2011). Therefore, insecurity and violence with its dire consequences in terms of loss of lives, properties has become the order of the day. According to Alubo (2011) in the first fifty-five months of civil rule December 2003, about 80 major violent eruptions were recorded. The economists reported that as at 2001, more than 6000 people have been killed. For instance, the cases of armed robbery on Nigeria’s high ways, banks, and households, the Niger Delta militants, the ethnic and religious crises as witnessed in Maiduguri (Bok o haram), Jos, Ibadan, and other parts of the country that claimed a lot of innocent souls and destroyed properties worth billions of naira are pointers to security lapses in the country. The cases of electoral violence in 2003, 2007 and 2011 elections and the recent by-election in Gombe, Bauchi, other parts of the state, the cases of kidnapping citizens and demand of ransom and worst of all the brutal killings of Nigerians by the police that are saddled with the primary responsibility of protecting the property and lives of citizens through torture in the name of investigation and direct shooting on the excuse of accidental discharge, as indicated by the Human Rights Report 2010, are all evidence their insecurity is in vogue in Nigeria. Security, including “human security”, is a critical foundation for sustainable development. This implies protection from systemic human rights abused, physical threats, violence, and extreme economic, social, and environmental risks, territorial and sovereignty threats. It is a primary prerequisite and goal for poor people to make a lasting improvement in their lives (UNIDIR, Report 2008). Cited by Ahmadu (2013)
    Nigeria as a nation has had a long, history of religious upheavals. Religious uprising that gave birth to problem of insecurity especially the current Boko Haram insurgeney and others before it started in the northern city of Kano in 1980 and later spread to other cities, mostly in the north. The emergence and growth of the Boko haram sect has been attributed mainly to social malaise and absence of effective engagement of the nation’s youths. In an editorial (The Guardian 11/02/2011) newspaper noted that Boko Haram has a social root. It is largely populated by young and often educated but unemployed believers who are, in the circumstance, restless and disenchanted with a life of idleness and hopelessness. According to the National Bureau of Statistics (NBS) over the last decade, Nigeria’s infrastructure spending Ahamefumirac a 1.9% (approximately $4 billion) per annum to GDP.

    The Harris–Todaro model of migration
    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.
    Harris and Todaro studied the migration of workers in a two-sector economic system, namely, rural sector and urban sector. The difference between these sectors are the type of goods produced, the technology of production and the process of wage determination. The rural sector is specialized in the production of agricultural goods. The productive process of this sector can be described by a Cobb-Douglas production function: where Ya is the production level of the agricultural good, Na is the amount of workers used in the agricultural production, Aa > 0 and 0 < f 0 and 0 < a 0 and g > 0 are a parametric constants. g is the elasticity of p with respect to the ratio Ym/Ya
    The overall population of workers in the economy is N, which is kept constant during the whole period of analysis. By assumption there are only two sectors and rural prices are wholly flexible, which implies that there is full employment in the rural area, i.e., all workers living at the rural sector are employed at any period. Then at any period the following equality is verified:

  12. Avatar Umeozulu Donald Chinedu says:

    Umeozulu Donald Chinedu
    2017/241439
    Economics
    donaldumeozulu@gmail.com

    To begin with the Surplus Labour theory which was proposed by Arthur Lewis and later modified by Fei and Ranis. The model describes a dual system of economy in which the Agricultural sector was seen as dominant in any developing nation and the Industrial sector was taken to be dominant in the developed nation. Lewis and Fei – Ranis model assumed that the agricultural sector has a surplus unproductive labour, and that this surplus labour is absorbed by the industrial sector due to it better wage rate.
    According to this theory, the primitive sector consists of the existing agricultural sector in the economy, and the modern sector is the rapidly emerging but small industrial sector. Both the sectors co-exist in the economy, wherein lies the crux of the development problem. Development can be brought about only by a complete shift in the focal point of progress from the agricultural to the industrial economy, such that there is augmentation of industrial output. This is done by transfer of labor from the agricultural sector to the industrial one, showing that underdeveloped countries do not suffer from constraints of labor supply. At the same time, growth in the agricultural sector must not be negligible and its output should be sufficient to support the whole economy with food and raw materials. Surplus value, Marxian economic concept that professed to explain the instability of the capitalist system. Adhering to David Ricardo’s labour theory of value, Karl Marx held that human labour was the source of economic value. The capitalist pays his workers less than the value their labour has added to the goods, usually only enough to maintain the worker at a subsistence level. Of the total worth of the worker’s labour, however, this compensation, in Marxian theory, accounts for only a mere portion, equivalent to the worker’s means of subsistence. The remainder is “surplus labour,” and the value it produces is “surplus value.” To make a profit, Marx argued, the capitalist appropriates this surplus value, thereby exploiting the labour.II. THE HARRIS-TODARO MODEL

    A. Assumptions

    Harris and Todaro studied the migration of workers in a two-sector economic system, namely, rural sector and urban sector. The difference between these sectors are the type of goods produced, the technology of production and the process of wage determination. The rural sector is specialized in the production of agricultural goods. The productive process of this sector can be described by a Cobb-Douglas production function:

    where Ya is the production level of the agricultural good, Na is the amount of workers used in the agricultural production, Aa > 0 and 0 < f 0 and 0 0 are a parametric constants. g is the elasticity of p with respect to the ratio Ym/Ya.

    Basics of the model
    Depiction of Phase1, Phase2 and Phase3 of the dual economy model using average output.
    One of the biggest drawbacks of the Lewis model was the undermining of the role of agriculture in boosting the growth of the industrial sector. In addition to that, he did not acknowledge that the increase in productivity of labor should take place prior to the labor shift between the two sectors. However, these two ideas were taken into account in the Fei–Ranis dual economy model of three growth stages. They further argue that the model lacks in the proper application of concentrated analysis to the change that takes place with agricultural development In Phase 1 of the Fei–Ranis model, the elasticity of the agricultural labor work-force is infinite and as a result, suffers from disguised unemployment. Also, the marginal product of labor is zero. This phase is similar to the Lewis model. In Phase 2 of the model, the agricultural sector sees a rise in productivity and this leads to increased industrial growth such that a base for the next phase is prepared. In Phase 2, agricultural surplus may exist as the increasing average product (AP), higher than the marginal product (MP) and not equal to the subsistence level of wages.
    According to Fei and Ranis, AD amount of labor (see figure) can be shifted from the agricultural sector without any fall in output. Hence, it represents surplus labor. After AD, MP begins to rise, and industrial labor rises from zero to a value equal to AD. AP of agricultural labor is shown by BYZ and we see that this curve falls downward after AD. This fall in AP can be attributed to the fact that as agricultural laborers shift to the industrial sector, the real wage of industrial laborers decreases due to shortage of food supply, since less laborers are now working in the food sector. The decrease in the real wage level decreases the level of profits, and the size of surplus that could have been re-invested for more industrialization. However, as long as surplus exists, growth rate can still be increased without a fall in the rate of industrialization. This re-investment of surplus can be graphically visualized as the shifting of MP curve outwards. In Phase2 the level of disguised unemployment is given by AK. [4] This allows the agricultural sector to give up a part of its labor-force until
    Phase 3 begins from the point of commercialization which is at K in the Figure. This is the point where the economy becomes completely commercialized in the absence of disguised unemployment. The supply curve of labor in Phase 3 is steeper and both the sectors start bidding equally for labor.
    The amount of labor that is shifted and the time that this shifting takes depends upon:
    1. The growth of surplus generated within the agricultural sector, and the growth of industrial capital stock dependent on the growth of industrial profits;
    2. The nature of the industry’s technical progress and its associated bias;
    3. Growth rate of population.

  13. Avatar OZUMBA RACHEL CHIDINMA says:

    NAME :Ozumba Rachel Chidinma
    REG NO:2017/249573
    EMAIL:chidinma.ozumba.249573@unn.edu.ng
    BLOG:Chinmaoz.blogspot.com
    DEPARTMENT:Economics

    THE HARRIS –TODARO MODEL OF MIGRATION
    INTRODUCTION
    Migration from rural informal sector-urban formal sector is driven by wage differentials and the rational postulations by the rural worker .Given this wage differentials, people rationally migrate into the cities hoping to get an urban job. But the probability of getting an urban job is not completely dependent on that rational move ,rather it depends on the size of unemployment existing in the city in relation to the number of people employed in the urban manufacturing sector. Hence, under-developed countries are faced with the problem of urban unemployment which is caused majorly by rural-urban migration. The Todaro Paradox can equally occur when job creation in urban area further leads to unemployment. Generally,this essay attempted to expound the assumptions, characteristics and the core arguments of Harris –Todaro model of Migration, Initiate a comparison between the Harris-Todaro model with other models and more specifically, compare the model with the real world while drawing opinions ..

    ASSUMPTIONS OF THE HARRIS –TODARO MODEL OF MIGRATION ​
    The following are the assumptions underlying the Harris -Todaro migration Model ;
    (1) Urban wage is institutionally and legally fixed .
    (2)Small open economy; the economy considered in Harris -Todaro model is a small open economy.
    (3) Two sector economy; apart from the assumption of small open economy , the model further assumes two sectors economy. One an agricultural rural sector and the other , manufacturing urban sector economy.
    (4) There three(3 )kinds of production factors , specific production factor in sector 1,K1 ,Specific production factor in sector 2, K2 and labour ,L, which is employed in both sectors and is mobile between sectors.
    (5) The capital –labor ratio and the factor reward ratio are in one to one relation with the relative price of the product.
    (6) There is equality between the probability of finding a job and the existing rate of employment.
    (7) In the rural agricultural sector, it is assumed that wages are flexible and equal to the marginal product of labor according to profit maximization.

    THE HARRIS-TODARO MODEL OF MIGRATION

    The Harris-Todaro model of migration 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 the issues concerning rural –urban Migration. The Harris-Todaro model is a pioneering general equilibrium model describing the labour migration mechanism from rural to Urban areas due to wage gap and the existence of urban unemployment and underemployment in developing countries.
    Historically, the Harris- Todaro Model can be traced to the 1960s , when the government of newly independent Kenya faced a difficult situation: Unemployment in Nairobi and other major cities was high and obviously rising. In other to cope with this problem, a cross sectional agreements were reached between the private-sector and public-sector which the employers agreed to increase employment in exchange for unions agreeing to hold wages at their present levels. The newly created jobs was expected to reduce unemployment. Nevertheless, urban unemployment appeared to have increased rather than decreased.​
    Consequent of this paradoxical event, John Harris and Michael Todaro theorized the Harris-Todaro model to explain the puzzle. At the core of the Harris-Todaro model were the following features. First, wages are higher in urban manufacturing-sector jobs than in rural agricultural-sector jobs. Second, to be hired for a manufacturing-sector job, one has to be physically present in the urban areas where the manufacturing-sector jobs are situated . Third, and as a result of the first two features, more workers search for manufacturing-sector jobs than are hired, employers hire some of the migrant but not all of them, and those not hired end up unemployed. Fourth, for equality to be maintained between the expected wage associated with searching for an urban job and the expected wage associated with taking up a lower-paying rural job, the equilibrium arising in such a setting is characterized by urban unemployment.
    The Harris-Todaro model formulated two policy results. The first concerns the policy of manufacturing-sector job creation to employ the unemployed – (say migrants from the rural sector). This policy, they proposed, would increase the formal sector labor force by more than the number of new jobs created, thereby raising the number of urban unemployed. Hence, the solution to urban unemployment is not creation of urban employment.
    The second policy option that Harris and Todaro considered was a policy of rural development. If such a program could increase the rural agricultural-sector wage, unemployment would then fall. Thus, in the Harris-Todaro model, the solution to urban unemployment is rural development. Soon after the publication of the model, the government of Kenya followed the Harris-Todaro prescriptions by putting into place a program of rural development. The result was a sharp decline in level unemployment in Kenya.
    Harris and Todaro’s fundamental contribution was a building model that fits the intrigues of the labor market that was based on sound micro-economic foundations. The relevance of this model today as a part of the economist’s intellectual toolkit is a tribute to its basic insight and enduring analytic power.
    Harris and Todaro formulated general processes for determining prices of the products produced by the two sectors and also for determining a rural-sector wage that varies inversely with the number of people in the rural sector. A simplified version of the Harris-Todaro model was developed in which product prices and rural-sector wages are taken as constant. Numerous additional analytic and policy results were derived in the simplified Harris-Todaro model. At the same time, some of the assumptions of the Harris-Todaro model were judged to be too restrictive, and so the model was generalized in the years that followed to annex their specific formulation within a broader framework. The initial Harris-Todaro model has been extended to allow for on-the-job search from a rural agriculture setting, the existence of an urban informal sector, preferential hiring of the better-educated, employment fixity, duality of production conditions and earnings levels within the rural sector, capital mobility, endogenous urban wage setting, risk aversion, and a system of demand for goods, among other factors.

    As an early two-sector labor-market model, the Harris-Todaro model set forth a principal alternative framework for policy analysis. It showed how employment and wage levels in one labor market reflect supply, demand, and institutional conditions not only in that labor market but also in other labor markets.
    In terms of pro-poor economic growth, the Harris-Todaro model and other two-sector-labor-market models can help policy makers avoid two mistakes. One is to assume that development efforts should be channeled to the sectors where the poor are. The other is to assume that efforts should always be focused on getting the poor out of the sectors in which they now are. Careful cost-benefit analysis based on well-specified labor-market models is required to decide among such alternatives.
    The Harris –Todaro model is a specific form of the neoclassical two sector model , represented by the Heckscher-Ohlin and Samuelson Model and it can be understood as a specific factor model (S-F Model), proposed by Jones (1971). In the S-F model , each sector has its own specific production factor which cannot move between sectors , and the specific factor endowments are also fixed. The Harris-Todaro model is a shortrun model with specific capital endowment in each sector.
    Given the wage rigidity in the urban area ,flexibility of wage in rural area and the mobility of labour assumptions, it is possible for workers to move freely due to wage gap between sectors. Put differently, workers move to the higher wage sector by comparing their expected wages in both sectors. The probability of finding a job equals the rate of employment. Since the rural area is agrarian , there is therefore no unemployment in the rural sector. Given this, the workers in the rural sector can always be employed, so that the probability of finding a job in the rural sector equals unity.
    The Harris-Todaro migration Model assumes wage differential as the basis of migration ,hence in equilibrium migration between the rural and urban sectors will cease since the urban expected wage is equal to the rural-expected wage which is the same as the rural real wage.
    Migration in any given time time depends on three factors;(a) The urban-migration wage gap (b) The urban employment rate and (c)The responsiveness of potential migrants to the resulting opportunities.
    The Harris-Todaro Equilibrium as shown in figure 1. There are two sectors :agriculture and manufacturing. Each sector has a specific factor and labor which is mobile between these two sectors. There is the assumption of constant. The horizontal axis shows labor force. The marginal product curves are LL for agriculture and MM’ for manufacturing. OW* is the fixed minimum wage in the manufacturing sector, while corresponding employment is given at NO*According Harris-Todaro model the equilibrium the expected urban wage must be equal to the agricultural wage.

    Since agricultural wage presented by ‘OV’ and then urban wage represented by ‘GR’ equal, we thus conclude that the Point ‘R’ in the graph fulfills the condition for equilibrium since the two rectangular are equal to each other.

    LEWIS- FEI-RANIS MODEL OF ECONOMIC GROWTH

    According to Todaro ,the Lewis-Fei model explains the historical scenario of migration obtainable in the western socio-economic milieu but is insufficient in explaining the trends of rural-urban migration in less developed countries.
    The lewis’ surplus labour makes the assumption that faster capital accumulation will be invested in modern industry causing new jobs in abundance. It implies that there would be labour transfer at the rate proportional to capital accumulation.
    Lewis’ assertion that rural sector has surplus labour and urban areas have full employment,does not hold true necessarily .In less developed countries particularly, there is less than full employment. According to reports M .S Smianthian Research Foundation and World Food Programme in 2002 unemployment was on the rise in urban india and the rate of urban unemployment was 9.5% for the lower expenditure classes.

  14. Avatar OZUMBA RACHEL CHIDINMA says:

    NAME :Ozumba Rachel Chidinma
    REG NO:2017/249573
    EMAIL:chidinma.ozumba.249573@unn.edu.ng
    BLOG:Chinmaoz.blogspot.com
    DEPARTMENT:Economics

    THE HARRIS –TODARO MODEL OF MIGRATION
    INTRODUCTION
    Migration from rural informal sector-urban formal sector is driven by wage differentials and the rational postulations by the rural worker .Given this wage differentials, people rationally migrate into the cities hoping to get an urban job. But the probability of getting an urban job is not completely dependent on that rational move ,rather it depends on the size of unemployment existing in the city in relation to the number of people employed in the urban manufacturing sector. Hence, under-developed countries are faced with the problem of urban unemployment which is caused majorly by rural-urban migration. The Todaro Paradox can equally occur when job creation in urban area further leads to unemployment. Generally,this essay attempted to expound the assumptions, characteristics and the core arguments of Harris –Todaro model of Migration, Initiate a comparison between the Harris-Todaro model with other models and more specifically, compare the model with the real world while drawing opinions ..

    ASSUMPTIONS OF THE HARRIS –TODARO MODEL OF MIGRATION ​
    The following are the assumptions underlying the Harris -Todaro migration Model ;
    (1) Urban wage is institutionally and legally fixed .
    (2)Small open economy; the economy considered in Harris -Todaro model is a small open economy.
    (3) Two sector economy; apart from the assumption of small open economy , the model further assumes two sectors economy. One an agricultural rural sector and the other , manufacturing urban sector economy.
    (4) There three(3 )kinds of production factors , specific production factor in sector 1,K1 ,Specific production factor in sector 2, K2 and labour ,L, which is employed in both sectors and is mobile between sectors.
    (5) The capital –labor ratio and the factor reward ratio are in one to one relation with the relative price of the product.
    (6) There is equality between the probability of finding a job and the existing rate of employment.
    (7) In the rural agricultural sector, it is assumed that wages are flexible and equal to the marginal product of labor according to profit maximization.

    THE HARRIS-TODARO MODEL OF MIGRATION

    The Harris-Todaro model of migration 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 the issues concerning rural –urban Migration. The Harris-Todaro model is a pioneering general equilibrium model describing the labour migration mechanism from rural to Urban areas due to wage gap and the existence of urban unemployment and underemployment in developing countries.
    Historically, the Harris- Todaro Model can be traced to the 1960s , when the government of newly independent Kenya faced a difficult situation: Unemployment in Nairobi and other major cities was high and obviously rising. In other to cope with this problem, a cross sectional agreements were reached between the private-sector and public-sector which the employers agreed to increase employment in exchange for unions agreeing to hold wages at their present levels. The newly created jobs was expected to reduce unemployment. Nevertheless, urban unemployment appeared to have increased rather than decreased.​
    Consequent of this paradoxical event, John Harris and Michael Todaro theorized the Harris-Todaro model to explain the puzzle. At the core of the Harris-Todaro model were the following features. First, wages are higher in urban manufacturing-sector jobs than in rural agricultural-sector jobs. Second, to be hired for a manufacturing-sector job, one has to be physically present in the urban areas where the manufacturing-sector jobs are situated . Third, and as a result of the first two features, more workers search for manufacturing-sector jobs than are hired, employers hire some of the migrant but not all of them, and those not hired end up unemployed. Fourth, for equality to be maintained between the expected wage associated with searching for an urban job and the expected wage associated with taking up a lower-paying rural job, the equilibrium arising in such a setting is characterized by urban unemployment.
    The Harris-Todaro model formulated two policy results. The first concerns the policy of manufacturing-sector job creation to employ the unemployed – (say migrants from the rural sector). This policy, they proposed, would increase the formal sector labor force by more than the number of new jobs created, thereby raising the number of urban unemployed. Hence, the solution to urban unemployment is not creation of urban employment.
    The second policy option that Harris and Todaro considered was a policy of rural development. If such a program could increase the rural agricultural-sector wage, unemployment would then fall. Thus, in the Harris-Todaro model, the solution to urban unemployment is rural development. Soon after the publication of the model, the government of Kenya followed the Harris-Todaro prescriptions by putting into place a program of rural development. The result was a sharp decline in level unemployment in Kenya.
    Harris and Todaro’s fundamental contribution was a building model that fits the intrigues of the labor market that was based on sound micro-economic foundations. The relevance of this model today as a part of the economist’s intellectual toolkit is a tribute to its basic insight and enduring analytic power.
    Harris and Todaro formulated general processes for determining prices of the products produced by the two sectors and also for determining a rural-sector wage that varies inversely with the number of people in the rural sector. A simplified version of the Harris-Todaro model was developed in which product prices and rural-sector wages are taken as constant. Numerous additional analytic and policy results were derived in the simplified Harris-Todaro model. At the same time, some of the assumptions of the Harris-Todaro model were judged to be too restrictive, and so the model was generalized in the years that followed to annex their specific formulation within a broader framework. The initial Harris-Todaro model has been extended to allow for on-the-job search from a rural agriculture setting, the existence of an urban informal sector, preferential hiring of the better-educated, employment fixity, duality of production conditions and earnings levels within the rural sector, capital mobility, endogenous urban wage setting, risk aversion, and a system of demand for goods, among other factors.

    As an early two-sector labor-market model, the Harris-Todaro model set forth a principal alternative framework for policy analysis. It showed how employment and wage levels in one labor market reflect supply, demand, and institutional conditions not only in that labor market but also in other labor markets.
    In terms of pro-poor economic growth, the Harris-Todaro model and other two-sector-labor-market models can help policy makers avoid two mistakes. One is to assume that development efforts should be channeled to the sectors where the poor are. The other is to assume that efforts should always be focused on getting the poor out of the sectors in which they now are. Careful cost-benefit analysis based on well-specified labor-market models is required to decide among such alternatives.
    The Harris –Todaro model is a specific form of the neoclassical two sector model , represented by the Heckscher-Ohlin and Samuelson Model and it can be understood as a specific factor model (S-F Model), proposed by Jones (1971). In the S-F model , each sector has its own specific production factor which cannot move between sectors , and the specific factor endowments are also fixed. The Harris-Todaro model is a shortrun model with specific capital endowment in each sector.
    Given the wage rigidity in the urban area ,flexibility of wage in rural area and the mobility of labour assumptions, it is possible for workers to move freely due to wage gap between sectors. Put differently, workers move to the higher wage sector by comparing their expected wages in both sectors. The probability of finding a job equals the rate of employment. Since the rural area is agrarian , there is therefore no unemployment in the rural sector. Given this, the workers in the rural sector can always be employed, so that the probability of finding a job in the rural sector equals unity.
    The Harris-Todaro migration Model assumes wage differential as the basis of migration ,hence in equilibrium migration between the rural and urban sectors will cease since the urban expected wage is equal to the rural-expected wage which is the same as the rural real wage.
    Migration in any given time time depends on three factors;(a) The urban-migration wage gap (b) The urban employment rate and (c)The responsiveness of potential migrants to the resulting opportunities.
    The Harris-Todaro Equilibrium as shown in figure 1. There are two sectors :agriculture and manufacturing. Each sector has a specific factor and labor which is mobile between these two sectors. There is the assumption of constant. The horizontal axis shows labor force. The marginal product curves are LL for agriculture and MM’ for manufacturing. OW* is the fixed minimum wage in the manufacturing sector, while corresponding employment is given at NO*According Harris-Todaro model the equilibrium the expected urban wage must be equal to the agricultural wage.

    Since agricultural wage presented by ‘OV’ and then urban wage represented by ‘GR’ equal, we thus conclude that the Point ‘R’ in the graph fulfills the condition for equilibrium since the two rectangular are equal to each other.

    LEWIS- FEI-RANIS MODEL OF ECONOMIC GROWTH

    The Fei–Ranis model of economic growth is a dualism model in developmental economics or welfare economics that has been developed by John C. H. Fei and Gustav Ranis and can be understood as an extension of the Lewis model. It is also known as the Surplus Labor model.
    According to Todaro ,the Lewis-Fei model explains the historical scenario of migration obtainable in the western socio-economic milieu but is insufficient in explaining the trends of rural-urban migration in less developed countries.
    The lewis’ surplus labour makes the assumption that faster capital accumulation will be invested in modern industry causing new jobs in abundance. It implies that there would be labour transfer at the rate proportional to capital accumulation.
    Lewis’ assertion that rural sector has surplus labour and urban areas have full employment,does not hold true necessarily .In less developed countries particularly, there is less than full employment. According to reports M .S Smianthian Research Foundation and World Food Programme in 2002 unemployment was on the rise in urban india and the rate of urban unemployment was 9.5% for the lower expenditure classes.

  15. Avatar Anachuna Cynthia Chisom says:

    The Fei–Ranis model of economic growth is a dualism model in developmental economicsor welfare economics that has been developed by John C. H. Fei and Gustav Ranis and can be understood as an extension of the Lewis model. It is also known as the Surplus Labor model. It recognizes the presence of a dual economy comprising both the modern and the primitive sector and takes the economic situation of unemployment and underemployment of resources into account, unlike many other growth models that consider underdeveloped countries to be homogenous in nature.
    According to this theory, the primitive sector consists of the existing agricultural sector in the economy, and the modern sector is the rapidly emerging but small industrial sector. Both the sectors co-exist in the economy, wherein lies the crux of the development problem. Development can be brought about only by a complete shift in the focal point of progress from the agricultural to the industrial economy, such that there is augmentation of industrial output. This is done by transfer of labor from the agricultural sector to the industrial one, showing that underdeveloped countries do not suffer from constraints of labor supply. At the same time, growth in the agricultural sector must not be negligible and its output should be sufficient to support the whole economy with food and raw materials. Like in the Harrod–Domar model, saving and investment become the driving forces when it comes to economic development of underdeveloped countries.

    The three fundamental ideas used in this model are:
    1. Agricultural growth and industrial growth are both equally important;
    2. Agricultural growth and industrial growth are balanced;
    3. Only if the rate at which labor is shifted from the agricultural to the industrial sector is greater than the rate of growth of population will the economy be able to lift itself up from the Malthusian population trap.
    Fei and Ranis emphasized strongly on the industry-agriculture interdependency and said that a robust connectivity between the two would encourage and speedup development. If agricultural laborers look for industrial employment, and industrialists employ more workers by use of larger capital good stock and labor-intensive technology, this connectivity can work between the industrial and agricultural sector. Also, if the surplus owner invests in that section of industrial sector that is close to soil and is in known surroundings, he will most probably choose that productivity out of which future savings can be channelized. They took the example of Japan’s dualistic economy in the 19th century and said that connectivity between the two sectors of Japan was heightened due to the presence of a decentralized rural industry which was often linked to urban production. According to them, economic progress is achieved in dualistic economies of underdeveloped countries through the work of a small number of entrepreneurs who have access to land and decision-making powers and use industrial capital and consumer goods for agricultural practices.
    The Lewis model is criticised on the grounds that it neglects agriculture. Fei–Ranis model goes a step beyond and states that agriculture has a very major role to play in the expansion of the industrial sector. In fact, it says that the rate of growth of the industrial sector depends on the amount of total agricultural surplus and on the amount of profits that are earned in the industrial sector. So, larger the amount of surplus and the amount of surplus put into productive investment and larger the amount of industrial profits earned, the larger will be the rate of growth of the industrial economy. As the model focuses on the shifting of the focal point of progress from the agricultural to the industrial sector, Fei and Ranis believe that the ideal shifting takes place when the investment funds from surplus and industrial profits are sufficiently large so as to purchase industrial capital goods like plants and machinery.
    It has been asserted that Fei and Ranis did not have a clear understanding of the sluggish economic situation prevailing in the developing countries. If they had thoroughly scrutinized the existing nature and causes of it, they would have found that the existing agricultural backwardness was due to the institutional structure, primarily the system of feudalism that prevailed. While mentioning the important role of high agricultural productivity and the creation of surplus for economic development, they have failed to mention the need for capital as well. Although it is important to create surplus, it is equally important to maintain it through technical progress, which is possible through capital accumulation, but the Fei-Ranis model considers only labor and output as factors of production, also the reluctant expansionary growth in the industrial sector of underdeveloped countries can be attributed to the lagging growth in the productivity of subsistence agriculture. This suggests that increase in surplus becomes more important a determinant as compared to re-investment of surplus, an idea that was utilized by Jorgenson in his 1961 model that centered around the necessity of surplus generation and surplus persistence, finally Stagnation has not been taken into consideration, and no distinction is made between labor through family and labor through wages. There is also no explanation of the process of self-sustained growth, or of the investment function. There is complete negligence of terms of trade between agriculture and industry, foreign exchange, money and price.

    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.
    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 is 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 drive of rural-urban migration, while urban unemployment is local governments’ main concern in many cities.
    The formal statement of the equilibrium condition of the Harris–Todaro model is as follows:
    • Let wr be the wage rate (marginal productivity of labor) in the rural agricultural sector.
    • Let le be the total number of jobs available in the urban sector, which should be equal to the number of employed urban workers.
    • Let lus be the total number of job seekers, employed and unemployed, in the urban sector.
    • Let wu be the wage rate in the urban sector, which could possibly be set by government with a minimum wage law.
    Rural to urban migration will take place if:
    Wr Le/Lus(Wu)
    At equilibrium
    Wr = Le/Lus(Wu).
    With the random matching of workers to available jobs, the ratio of available jobs to total job seekers gives the probability that any person moving from the agricultural sector to the urban sector will be able to find a job. As a result, in equilibrium, the agricultural wage rate is equal to the expected urban wage rate, which is the urban wage multiplied by the employment rate.
    Therefore, migration from rural areas to urban areas will increase if:
    • Urban wages (wu) increase in the urban sector (le), increasing the expected urban income.
    • Agricultural productivity decreases, lowering marginal productivity and wages in the agricultural sector (wr), decreasing the expected rural income.
    However, even though this migration creates unemployment and induces informal sector growth, this behavior is economically rational and utility-maximizing in the context of the Harris–Todaro model. As long as the migrating economic agents have complete and accurate information concerning rural and urban wage rates and probabilities of obtaining employment, they will make an expected income-maximizing decision.

  16. Eke promise chinaza

    2017/241531
    Economic Education
    300level

    THE CRITICISM OF THE HARRIS-TODARO MODEL OF MIGRATION

    The most fundamental criticism with this model is the barriers which exist preventing labor from migrating to rich (urban sector) countries from poor (rural sector). This makes it incredibly difficult to model international migration in a Harris-Todaro framework, simply because there are barriers to entry from workers wanting to move and not being able to do so. Furthermore, there are other barriers to entry, such as not speaking the language, cultural issues, not having a social or business network and needing sufficient capital to afford to physically move and then set up in a far away land.

    Moreover, the model assumes that costs are given in a monetary sense, whereas in reality it might be quite difficult to put a value on leaving your family in a distant country to go and work abroad. Similarly, the model assumes that individuals can rationally calculate the economic gains from migration, but by moving individuals would be imposing a cost upon themselves, and would have to include the value of living abroad (i.e. even though wages are higher they are eaten up by housing, food, clothing and other living costs) which may be quite difficult to calculate.

    Other issues with the model, in both an internal and international perspective, are that it doesn’t include human capital, there are no externalities and it treats workers and citizens as homogenous. On the first issue, including human capital in the model is quite relevant, especially in an internationally empirical sense as developed countries allow more skilled workers than they do unskilled workers.
    On the second issue, Carrington, Detragiache and Vishwanath, develop a model which incorporates a positive externality associated with earlier people moving from nearby villages and the probability of a rural citizen migrating. Because this increases the social network of a migrating individual it may increase the probability that he decides to move.
    The third issue is a more interesting point, in that cities aren’t homogenous: different cities develop different industrial sectors, and over time some of these sectors will boom whilst others will decline. This may mean that unemployment rates between cities vary and not only does a potential migrant have to decide whether he ought to move from agriculture to industry, but has to chose to which city he ought to move based on distance (and other costs), and returns (seeing which city is the most prosperous). This adds an even greater complex nature to such a model, especially with the large distances associated with cities in developed countries, and the different opportunities within them (e.g. Cardiff and New York). However, some would counter-argue that even the poorest cities in the developed countries, are much better off than the richest areas in developing countries.

    To summarise, we see that the Harris-Todaro model is very limited in its scope in both an international and internal setting due to its narrow-mindedness assumption on economic values, which don’t incorporate emotional, social and humanitarian costs/benefits. More fundamentally, it isn’t an appropriate model in an international setting due to the barriers to entry which are erected by the developed world. By not incorporating human capital into our model, we are missing any migrants which may well be allowed into the developed world as high skilled workers can sometimes (but not always, even highly skilled workers can be limited to entering a country) get past the developed countries’ quota barriers. Todaro and Smith suggest that education for the sake of education should be restricted as a policy in developing countries, as often the urban sector can only ration jobs through education as a signalling effect. Whilst this seems like a bizarre idea, given that this would mean only the rich – who are generally the ones able to afford education in developing countries – would be able to attain jobs, and not poor, but clever productive individuals; it contradicts the policy prescription in an international setting, which ought to be for developing countries to increase their education so that workers become skilled and can improve their chances of migrating to developed country.

    The movement of migrants from developing countries to developed countries, shouldn’t necessarily be seen as detrimental to the plight of developing countries, as proponents of “brain drain” theory suggest. Remittances sent by migrants to their families at home amount to $328bn, this can help developing countries provide education, health and give them a vital source of foreign exchange for the purchase of capital which can help them get out of poverty and low income traps.

    Empirically we would expect most migrants to be of working age (i.e. between 18-50) and we would expect a lot more males to migrate than females, as there job – unfortunately – tend to be better. Whilst this may be the case overall, there is still substantial evidence that women, children and the elderly migrate, more than the economic model would suggest.

    Furthermore, the fact that a significant proportion of migrants are not economic, but asylum seekers on humanitarian grounds would suggest that the Harris-Todaro model isn’t particularly useful in explaining world migration patterns.

    Migration restrictions are imposed both in an international sense and sometimes internally – for example, see China, where nationals have to get permits (hukou) to reside in urban areas. The effect of this is to keep workers in rural areas to prevent a large source of unemployed workers in urban areas. The main reason for this is to prevent the social issues associated with overcrowding and the development of slums in urban areas. If deployed successfully – whilst being normatively unfair and ethically wrong – this could be quite successful at solving the issues associated with a swelling of urban populations and would maintain an equitable distribution of labour in rural areas. However this can be achieved, perhaps more effectively, and certainly more humanely, by increasing the benefits to staying in rural areas. For example by increase agricultural non-farm jobs. On the other hand wage subsidies are ineffective. A wage subsidy would increase the rural-urban expected wage differential (by either initially reducing unemployment, or through a higher urban wage) and thus encourage even more workers to migrate from farms to the city – in hope for a better life – creating even greater unemployment and would thereby fail in attempting to achieve an equitable labour distribution across sectors.

    Reducing inequality in land holdings would only promote efficiency in allocation of workers between sectors if it increased the wages in rural areas. This may be unlikely if there are increasing returns to scale, but under the assumption of constant returns to scale it may be possible if we assume that tenants are more likely to invest in their own land (and hence increase returns and rural wages) than if they were working on somebody else’s land.

    THE APPLICATION AND THE IMPLICATION OF THE HARRIS-TODARO MODEL OF MIGRATION TO OUR EVERY DAY LIFE
    According to the model, the rising urban wage pushes up the expected wage in the urban sector and consequently encourages workers to migrate from the rural sector to the urban sector., this phenomenon is referred to as Todaro paradox. The possibility of obtaining an urban job divided by the urban labor force. They believe that unemployment is in no existence in the rural areas but in real sense, there are some rural residents that are unemployed.
    Todaro have developed a new model of economics development which is relevant for labour surplus countries like Nigeria. There is always a migratory flow from the rural sector of the economy to the urban sector of the economy. The model states that creating urban jobs is an insufficient solution to the urban unemployment and this is applicable in Nigeria.

  17. Avatar Asogwa Arinze Godwin says:

    Name: Asogwa Arinze Godwin
    Reg no: 2016/235173
    Department: Economics
    The Harris Todaro model of migration
    The key hypothesis of Harris and Todaro are that migrants react mainly to economic incentives, earnings differentials, and the probability of getting a job at the destination have influence on the migraton decision. The economic system simulated is characterized by the assumption originally made by Harris and Todaro.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. What are the main features of the Harris-Todaro model of rural-urban migration? Rational economic decision of individual migrants. Their decision is based on expected rather than actual wage differentials. They are also well aware of employment situation in cities. In the Harris–Todaro model, the rising urban wage pushes up the expected wage in the urban sector and consequently encourages workers to migrate from the rural sector to the urban sector. This phenomenon is referred to as Todaro paradox.
    The Lewis FEI RANIS model
    The Fei–Ranis model of economic growth is a dualism model in developmental economics or welfare economics that has been developed by John C. H. Fei and Gustav Ranis and can be understood as an extension of the Lewis model. It is also known as the Surplus Labor model. Ranis and Fei, assumed that the labour in the industrial sector will be paid, in terms of the industrial products and they had to bring the hanging terms of trade into the picture.

    So we find that whereas according to Ranis and Fei, Lewis’ turning point appears as soon as phase in their model ends, according to Lewis himself, the turning point will appear at the end of the phase II. If i.e. upto the point where labour in the agricultural sector is paid institutional wages. According to this theory, the primitive sector consists of the existing agricultural sector in the economy, and the modern sector is the rapidly emerging but small industrial sector. Both the sectors co-exist in the economy, wherein lies the crux of the development problem. Development can be brought about only by a complete shift in the focal point of progress from the agricultural to the industrial economy, such that there is augmentation of industrial output. This is done by transfer of labor from the agricultural sector to the industrial one, showing that underdeveloped countries do not suffer from constraints of labor supply. At the same time, growth in the agricultural sector must not be negligible and its output should be sufficient to support the whole economy with food and raw materials. Like in the Harrod–Domar model, saving and investment become the driving forces when it comes to economic development of underdeveloped countries.

  18. Avatar Mmadu Joy Ukamaka says:

    Name: MMADU JOY UKAMAKA
    DEPARTMENT: ECONOMICS
    REG NO:2017/249528
    EMAIL: joymmadu5@gmail.com

    REASONS WHY THE IMPOVERISHED HAVE MORE KIDS THAN THE RICH
    1. High child mortality rates. In many developing countries like Nigeria where the lives of the new born babies are being threatened due to some factors and important life enhacing facilities that are not in place like not having enough nutritious food, limited access to clean water, inadequate housing, poor health care and minimal government support. All of these factors contribute to child mortality andparents in poverty know this keenly. According to the World Health Organization, 5.4 million children under five are dying every year, with most of these children in developing countries. Faced with this reality, parents may decide to have more kids, understanding the heartbreaking truth that some of their children might not survive.
    2. Misconceptions about family planning. In some communities, there is still cases where stigmas against contraception still exist. These beliefs can can emernate from different sources, including breakdowns in public health education, cultural biases and even scepticism about the motives of the government in controlling family size. Often, these above listed factors contributes in cultivating the fear and confusion over using
    certain family planning methods.
    3. Limited access to education: Generally, the higher the degree of education and GDP per capita a country has, the lower the birth rate. In Burkina Faso, one of the world’s poorest countries, less than one-third of the country can competently read and write .Here, the average number of kids a mum has is between five and six. In Australia, where the literacy rate is 99 per cent, the average couple has 1.77 children. Women who are opportuned to have some formal education are more likely than uneducated women to use contraception, marry later, and have fewer children.
    4. Early marriage and gender roles
    In many developing countries, a woman’s role is expected to be as a wife and mother. This may often mean she gets married youngerand begins having children earlier enough. In developing countries, one in every three girls is married before age 18 . Married girls are often under pressure to become pregnant as soon as possible. This typically means an end to a girl’s education, which can limit her life choice expectations and help perpetuate the cycle of poverty.
    5. Care for elders
    In some developing countries, like Nigeria where the
    government doesn’t provide a pension or social security benefit, so parents must rely
    on their children to care for them in their old age. Couples may choose to have more
    kids to ensure they are properly taken care of when they’re older. For example, in India, children and grandchildren are legally required to provide food, accommodation, and health care for their parents at their old age when they are unable to provide for themselves.
    6. Need for extra labour

  19. Avatar Ogbonna chika Philip,. Education Economics 300 level, 2017/242029 says:

    HARRIS TODAROS MODEL

    The Harris Todaros model also known as the Harris Todaros Migration Model is a model of developed by John Rees Harris and Michael Todaro in the 1970s . It explains issues relating to rural Urban migration and main assumption that movements or migration of people from the rural to the urban centers is chiefly as a result of what is called the expected wage/income differences. This further turns to explain that as people will tend to migrate to urban centers from the rural areas due to the expected wage difference, it also justify unemployment increase or high presence in the urban areas as economically rational. The migration activities at equilibrium rate between the two sector is equal and thus zero, but not without a positive unemployment presence in the urban areas. In this view have China emerged to bridge the gap explained by this model seeing that in many cities urban unemployment is a major problem and through attempts in technology is creating a possible habitual rural sector such that will minimize choices and chances for migration of persons from the rural to the urban centers.

    LEWIS FEI RANIS MODEL
    The Lewis fei Rani’s Model unlike the Harris Todaros Migration Model is a two way model recognising two distinct economy which is comprised of the primitive and the morden sectors.
    It is concerned with the issues of unemployment and underemployment of resources in both economic sectors. The model explains that the primitive sector has in it the usual agricultural sector and and that the urban sector or the morden sector is the fast growing little industrial sectors and that they both exist side by side in the economy. It is in this coexistence that the economic problem of development is situated. However on like in other models which sees the less developed or developing areas/countries as homogeneous entity, the Lewis fei Rani’s Model acknowledge the interdependence and coexistence of both sector in an economy. The way to development in this model is suggesting a total shift from agricultural economy, even though not to mean an aboundonment of the agricultural sector but a sustainable practices that would guarantee economic security to the industrial economy such that the output of the industrial sectors is greatly increased.

  20. Avatar IJE VORDA GOODNESS says:

    NAME: IJE VORDA GOODNESS
    REG NO: 2017/249514
    EMAIL: vordagoodness78@gmail.com

    HARRIS-TODARO MODEL OF MIGRATION AND THE LEWIS-FEI-RANIS MODEL OF ECONOMIC GROWTH AND HOW IT APPLIES TI THE NIGERIA. HARRIS-TODARO MODEL OF MIGRATION The Harris-Todaro model is an economic model developed in 1970, named after John R.Harris and Micheal Todaro. It is used in development economics and welfare economics to explain rural-urban migration within a country. It arose in criticism of the Lewis model. Harris and Todaro model holds that earnings differentials, economic incentives and the probability of getting a job at the destination have key influence on the migration decision of migrants. In other words, these authors posit that rural-urban migration will occur while the urban expected wage exceed the rural wage. More than one rural worker is likely to migrate to the urban sector for a single job created. So the agricultural output of 2 or more labourers is lost for each job created in the urban sector. This migration can be internal migration or international migration. Internal migration is movement within a country. The potential migrant first calculates the real income which he or she would get in the urban area for a job with his/her present effort. A subjective judgement of the probability of obtain­ing such a job. Comparison is made between the expected income with that which he/she hopes to obtain in the rural area. Migrants decision is based on the difference. For example, suppose the ex­pected rural income is #10,000 per month, and that real income of an urban job which is commensurate with her qualification is #20,000. However, this information alone is not suffi­cient to make the migration decision. If the subjective probability of getting the urban job is 0.45, than the expected income would be #9000 (i.e 0.45 * #20,000) and no migration would take place on this case expected urban wage = actual urban wage x the probability of getting a job. If the migrant moves with his or her family members, it will be almost impossible for them (migrants family members) to get jobs since they don’t own lands in the urban area. If the subjective probability of getting a job in the city is 0.9, then the expected wage rate is #18,000 ( 0.9 * 20,000 ) since it is high there’s incentive to move to the city and migration will likely take place till the point were urban and rural wages are equal. It is important to note that the difference between the rural agricultural sector and the urban industrial sector are the type of goods produced, the technology used in production and the process of wage determination. The rural sector is specialized in the production of agricultural goods, production is labour intensive and wages are much lower relative to the urban sector. In contrast the urban sector specializes in the production of industrial goods, is capital intensive, wages are higher than the rural sector and is much smaller in developing countries. Therefore, migration from the agricultural sector to urban areas will increase if: ▪️ Urban wages represented by (wu) increase in the urban sector represented by (le), increasing the expected urban income. ▪️ Agricultural productivity reduces, lowering marginal productivity and wages in the rural sector (wr), decreasing the expected rural income. ▪️ The responsiveness of potential migrants to the resulting opportunities in the urban areas is high. As long as the rural wage rate (Wr) expected urban wages (Weu) there will be a reverse migration i.e a flow of disappointed urban jobseekers back to the rural areas. As migration continues a point is reached where expected urban wages and rural income is equal. When that point is reached we have an equilibrium. ASSUMPTIONS OF THE HARRIS-TODARO MODEL ▪️ This model assumes that there are only 2 sectors in the economy ( the rural agricultural sector and the urban indundustrial sector). ▪️ Migration decision is based on expected income differentials between rural and urban areas rather than just wage differentials. This means that rural-urban migration in a context of high urban unemployment can be economically rational if expected urban income is greater than expected rural income. ▪️ This model assumes that no form of unemployment exist in the rural-agricultural sector. ▪️ Rural agricultural production and the subsequent labour market is perfectly competitive i.e agricultural rural wages equals agricultural marginal productivity. ▪️ The overall population of workers in the economy is kept constant during the whole period of study and is represented by N. ▪️ The relative price of the agricultural good in terms of the industrial good, p, varies according to the relative scarcity between industrial and agricultural goods. ▪️ In the Harris-Todaro model it is assumed that the urban wage is institutionally and legally fixed, so that as a result of the migration of workers, if the number of migrant workers exceed the number of new jobs created, some workers would necessarily be unemployed, underemployed or will be forced into the urban informal sector RELEVANCE OF THE HARRIS-TODARO MODEL IN DEVELOPING COUNTRIES Rural-urban migration has over the years been an important part of urbanization in developing nations. The Harris-Todaro model was used to explain migration patterns in China. Nigeria as a developing country over the years we have experienced rural urban migration since wages are relatively higher in the cities than the rural areas. This over the years has led to a loss in rural manpower and reduction in agricultural output but matching growth has not been seen in the industrial sector rather an exponential increase in unemployment and underemployment. The Harris-Todaro model explains this phenomenon. Nigeria is considered the Urban giant of Africa. Urban natural population increase has been the dominant characteristic of urban growth in the Nigeria post-colonial period and will likely continue in the immediate future period. As at 2010 Nigeria is said to have added about 62.5 million individuals to it’s urban population and is estimated to be 226 million in 2050. Historical account of urban rural migration state a positive relationship between urbanization and economic growth, however this has not been the case in Nigeria. It is important to note that this is not peculiar to Nigeria. During the period 1970 to 2010 agricultural employment fell by 19% with the service sector growing by 21% and a 5% decline in the manufacturing sector. LIMITATIONS OF THE HARRIS-TODARO MODEL ▪️ Some of the assumptions of the Harris-Todaro’s model were seen to be too restrictive. ▪️ The assumption that there is a perfect competition in the rural sector is not realistic. ▪️ The Harris-Todaro model also assumes that potential migrants are risk neutral where the migrants will likely be risk averse i.e they are indifferent between a certain expected rural income and an uncertain expected urban income of the same magnitude. ▪️ It thought that the only factor influencing migration was economic no reference to better education or healthcare. ▪️ Rural migrants don’t necessarily migrate back to the rural areas if they don’t get job in the cities instead there’s an increase in the urban informal sector. Furthermore, the migration dynamics generated by migrants that seek to adaptate to the economic environment that they co-create leads the economy toward a long run equilibrium characterized by urban concentration characterized by underemployment and unemployment. When this long run equilibrium is reached, the Harris-Todaro condition is therefore satisfied. There is a stabilization of the rural-urban expected wage differential. CONCLUSIONS DRAWN FROM THE HARRIS-TODARO MODEL. This model explains migration in developing nations and it makes us understand that:- ▪️ So long as expected urban wages exceeds rural agricultural wages migration to the cities will continue. ▪️ When rural wages (wr) exceed expected urban wages the there’ll be a reverse migration i.e people will move back to the villages. ▪️ At equilibrium the rural wages and expected urban wages are equal and so therefore there’s a no incentives to move to the cities or rural areas. For government to reduce rural urban migration policies that encourage and increase agricultural production should be encouraged. This is fine through the introduction of technology to the brutal agricultural sector. This will create incentives for migrants to remain in the rural areas moreover rural wage rate will be giving a boost. So while agricultural is developed the industrial sector is developed simultaneously. If the number of labour in the rural sector continues to decrease then the price of Agricultural products will increase because it will become scare since production will drop. THE LEWIS-FEI- RANIS MODEL. The Lewis-Fei-Ranis model is a dualism model developed by John.C. Fei and Gustav Ranis. It is understood as an extension of the Lewis model. It is also known as the surplus labour model. This model recognizes the presence of the modern and the primitive sector. In this model there’s existence of unemployment and underemployment of resources. The primitive sector is already existing agricultural sector and the modern sector is the rapidly emerging but still small sector. According to this model development is brought about by a transfer of labour from the primitive sector to the modern sector but warns that while there’s a shift in the focal point of progress in the economy from the agricultural to the modern sector, the agricultural sector growth should not be negligible and output should be adequate to support the whole economy with food and raw materials. Savings and development is also a driving force in economic development in developing countries.one of the drawback of Lewis was that although the model didn’t advocate for complete abandonment of the agricultural sector it undermined the role of agriculture in industrial growth. This model recognizes 3 stages in development. Phase 1: the agricultural labour force is infinite elastic and suffers from disguised unemployment and MP=0. Phase 2: there is a fall in average product since agricultural labourers have more the industrial sector. The real wage of industrial labourers reduces due to shortage of food supply, since there are lesser agricultural labourers. The decrease in real wage reduces the level of profit and surplus size that could be re-invested to further boost industrialization. It is important to note that so long as surplus exists, growth rate can still be increased without a full in industrialization. Phase 3: the amount of labour that moves from the agricultural to the modern sector depends on. ▪️The level of surplus growth generated within the primitive sector, the growth of industrial capital stock depends on industrial profit growth. ▪️ Population growth rate ▪️ The nature of industry’s progress and its associated bias. From the Lewis-Fei-Ranis model we understand that agricultural growth is equally as important as industrial growth, agricultural growth and industrial growth are balanced, the economy will be able to overcome the Malthusian population tarp only if the rate of labour shift from the primitive to the modern sector is larger than population growth rate. Landowners investment and government fiscal measures influence the shifting of labour. The private and social cost of shifting labour can be very high. Per capital agricultural consumption can increase and there is a wide gap between urban and rural wages. This changes leads to leakages that prevents the creation of agricultural surplus. Fei and Ranis strongly emphasize the interdependency of the industrial-agricultural sector and holds that a strong connection between the 2 sectors will speed up development. According to them economic growth is brought about in developing countries through the work of few numbers of entrepreneurs who have access to land and decision making powers and use industrial capital and consumer goods for agricultural practices. Fei and Ranis assume that there’s constant returns to scale in the industrial and agricultural sector and the main factors of production are capital and labour. In the Lewis-Fei-Ranis model the major source of labour supply to the industrial sector is the agricultural sector. Since Lewis placed little emphasis on agriculture sector Fei and Ranis placed greater value on agricultural and stated that the rate of industrial growth depends on the total amount of agricultural surplus and on the amount of Profit earned in the industrial sector. As a developing country advances there’s reallocation of labour from the agricultural to the modern sector. The essence of labour reallocation has lies in Engel’s law that states that the proportion of income spent on food decreases with an increase in the individual’s income level. Assuming 80% of labour force is involved in agricultural, 20% is left to the industrial sector. As productivity of agriculture increases it becomes possible for just 36% labour population to meet food supply satisfactory and as a result 64% of labour is now in the industrial sector. This is very much desired for an economy since the growth of industrial goods depends on the rate of per capital income and the growth of agriculture goods subject to the population growth rate. Labour reallocation is also important because with time consumers begin to want more consumer goods. Labour reallocation is necessary for producing more capital investment good. The Lewis-Fei-Ranis model also emphasise that government has a major role to play in the initial stages of growth. Government also need to work on the social and economic overheads by the construction of roads,bridges, railways and other capital projects. In the model we understand that there’s a possibility of growth without development. As technology led to a shift in labour saving production technique, growth of the economy takes place with increase in profit but no really economy development. CRITICISM OF LEWIS-FEI-RANIS MODEL ▪️It is emphasized that Fei and Ranis did not really understand the sluggish economic situation prevailing in developing countries. Feudalism inhibited development in developing countries. ▪️Fei-Ranis was criticised on the grounds that it assumed that the MPP of labour is zero during the early stage of Economic development, this is only true when agricultural labour is very large this therefore leads to a shift of labour to the cities. When labour in the cities is excess then they are absorbed in the informal sector. RELEVANCE OF THE LEWIS-FEI-RANIS MODEL IN NIGERIA This model is very important for developing nations as it explains the stages of economic development and why there’s a shift of labour concertration from the agricultural to the industrial sector. Although this is a slowing process. In Nigeria it’s no news that the majority of labour is employed in the agricultural sector. If this model is applied in understanding the Nigerian situation then we understand that when Economic development is happening in Nigeria they’ll be a shift of labour from the agric sector to the industrial sector. From this model we understand that government also has a major role to play in the Economic development of Nigeria by providing capital goods. Capital accumulation will also give the Nigerian economy a boost.

  21. Avatar IJE VORDA GOODNESS says:

    NAME: IJE VORDA GOODNESS
    REG NO: 2017/249514
    EMAIL : vordagoodness78@gmail.com
    BRIEF DISCUSSION ON THE HARRIS-TODARO MODEL OF MIGRATION AND THE LEWIS-FEI-RANIS MODEL OF ECONOMIC GROWTH AND HOW IT APPLIES TI THE NIGERIA.

    HARRIS-TODARO MODEL OF MIGRATION

    The Harris-Todaro model is an economic model developed in 1970, named after John R.Harris and Micheal Todaro. It is used in development economics and welfare economics to explain rural-urban migration within a country. It arose in criticism of the Lewis model.

    Harris and Todaro model holds that earnings differentials, economic incentives and the probability of getting a job at the destination have key influence on the migration decision of migrants. In other words, these authors posit that rural-urban migration will occur while the urban expected wage exceed the rural wage. More than one rural worker is likely to migrate to the urban sector for a single job created. So the agricultural output of 2 or more labourers is lost for each job created in the urban sector.

    This migration can be internal migration or international migration. Internal migration is movement within a country.

    The potential migrant first calculates the real income which he or she would get in the urban area for a job with his/her present effort. A subjective judgement of the probability of obtain­ing such a job. Comparison is made between the expected income with that which he/she hopes to obtain in the rural area. Migrants decision is based on the difference. For example, suppose the ex­pected rural income is #10,000 per month, and that real income of an urban job which is commensurate with her qualification is #20,000.

    However, this information alone is not suffi­cient to make the migration decision. If the subjective probability of getting the urban job is 0.45, than the expected income would be #9000 (i.e 0.45 * #20,000) and no migration would take place on this case expected urban wage = actual urban wage x the probability of getting a job. If the migrant moves with his or her family members, it will be almost impossible for them (migrants family members) to get jobs since they don’t own lands in the urban area.

    If the subjective probability of getting a job in the city is 0.9, then the expected wage rate is #18,000 ( 0.9 * 20,000 ) since it is high there’s incentive to move to the city and migration will likely take place till the point were urban and rural wages are equal.

    It is important to note that the difference between the rural agricultural sector and the urban industrial sector are the type of goods produced, the technology used in production and the process of wage determination. The rural sector is specialized in the production of agricultural goods, production is labour intensive and wages are much lower relative to the urban sector. In contrast the urban sector specializes in the production of industrial goods, is capital intensive, wages are higher than the rural sector and is much smaller in developing countries.

    Therefore, migration from the agricultural sector to urban areas will increase if:

    ▪️ Urban wages represented by (wu) increase in the urban sector represented by (le), increasing the expected urban income.
    ▪️ Agricultural productivity reduces, lowering marginal productivity and wages in the rural sector (wr), decreasing the expected rural income.
    ▪️ The responsiveness of potential migrants to the resulting opportunities in the urban areas is high.
    As long as the rural wage rate (Wr) expected urban wages (Weu) there will be a reverse migration i.e a flow of disappointed urban jobseekers back to the rural areas.

    As migration continues a point is reached where expected urban wages and rural income is equal. When that point is reached we have an equilibrium.
    ASSUMPTIONS OF THE HARRIS-TODARO MODEL

    ▪️ This model assumes that there are only 2 sectors in the economy ( the rural agricultural sector and the urban indundustrial sector).
    ▪️ Migration decision is based on expected income differentials between rural and urban areas rather than just wage differentials. This means that rural-urban migration in a context of high urban unemployment can be economically rational if expected urban income is greater than expected rural income.
    ▪️ This model assumes that no form of unemployment exist in the rural-agricultural sector.
    ▪️ Rural agricultural production and the subsequent labour market is perfectly competitive i.e agricultural rural wages equals agricultural marginal productivity.
    ▪️ The overall population of workers in the economy is kept constant during the whole period of study and is represented by N.
    ▪️ The relative price of the agricultural good in terms of the industrial good, p, varies according to the relative scarcity between industrial and agricultural goods.
    ▪️ In the Harris-Todaro model it is assumed that the urban wage is institutionally and legally fixed, so that as a result of the migration of workers, if the number of migrant workers exceed the number of new jobs created, some workers would necessarily be unemployed, underemployed or will be forced into the urban informal sector
    RELEVANCE OF THE HARRIS-TODARO MODEL IN DEVELOPING COUNTRIES
    Rural-urban migration has over the years been an important part of urbanization in developing nations. The Harris-Todaro model was used to explain migration patterns in China. Nigeria as a developing country over the years we have experienced rural urban migration since wages are relatively higher in the cities than the rural areas. This over the years has led to a loss in rural manpower and reduction in agricultural output but matching growth has not been seen in the industrial sector rather an exponential increase in unemployment and underemployment. The Harris-Todaro model explains this phenomenon. Nigeria is considered the Urban giant of Africa. Urban natural population increase has been the dominant characteristic of urban growth in the Nigeria post-colonial period and will likely continue in the immediate future period. As at 2010 Nigeria is said to have added about 62.5 million individuals to it’s urban population and is estimated to be 226 million in 2050. Historical account of urban rural migration state a positive relationship between urbanization and economic growth, however this has not been the case in Nigeria. It is important to note that this is not peculiar to Nigeria. During the period 1970 to 2010 agricultural employment fell by 19% with the service sector growing by 21% and a 5% decline in the manufacturing sector.

    LIMITATIONS OF THE HARRIS-TODARO MODEL

    ▪️ Some of the assumptions of the Harris-Todaro’s model were seen to be too restrictive.
    ▪️ The assumption that there is a perfect competition in the rural sector is not realistic.
    ▪️ The Harris-Todaro model also assumes that potential migrants are risk neutral where the migrants will likely be risk averse i.e they are indifferent between a certain expected rural income and an uncertain expected urban income of the same magnitude.
    ▪️ It thought that the only factor influencing migration was economic no reference to better education or healthcare.
    ▪️ Rural migrants don’t necessarily migrate back to the rural areas if they don’t get job in the cities instead there’s an increase in the urban informal sector.

    Furthermore, the migration dynamics generated by migrants that seek to adaptate to the economic environment that they co-create leads the economy toward a long run equilibrium characterized by urban concentration characterized by underemployment and unemployment. When this long run equilibrium is reached, the Harris-Todaro condition is therefore satisfied. There is a stabilization of the rural-urban expected wage differential.

    CONCLUSIONS DRAWN FROM THE HARRIS-TODARO MODEL.

    This model explains migration in developing nations and it makes us understand that:-
    ▪️ So long as expected urban wages exceeds rural agricultural wages migration to the cities will continue.
    ▪️ When rural wages (wr) exceed expected urban wages the there’ll be a reverse migration i.e people will move back to the villages.
    ▪️ At equilibrium the rural wages and expected urban wages are equal and so therefore there’s a no incentives to move to the cities or rural areas.

    For government to reduce rural urban migration policies that encourage and increase agricultural production should be encouraged. This is fine through the introduction of technology to the brutal agricultural sector. This will create incentives for migrants to remain in the rural areas moreover rural wage rate will be giving a boost. So while agricultural is developed the industrial sector is developed simultaneously. If the number of labour in the rural sector continues to decrease then the price of Agricultural products will increase because it will become scare since production will drop.

    THE LEWIS-FEI- RANIS MODEL.
    The Lewis-Fei-Ranis model is a dualism model developed by John.C. Fei and Gustav Ranis. It is understood as an extension of the Lewis model. It is also known as the surplus labour model. This model recognizes the presence of the modern and the primitive sector. In this model there’s existence of unemployment and underemployment of resources. The primitive sector is already existing agricultural sector and the modern sector is the rapidly emerging but still small sector.
    According to this model development is brought about by a transfer of labour from the primitive sector to the modern sector but warns that while there’s a shift in the focal point of progress in the economy from the agricultural to the modern sector, the agricultural sector growth should not be negligible and output should be adequate to support the whole economy with food and raw materials. Savings and development is also a driving force in economic development in developing countries.one of the drawback of Lewis was that although the model didn’t advocate for complete abandonment of the agricultural sector it undermined the role of agriculture in industrial growth.
    This model recognizes 3 stages in development.
    Phase 1: the agricultural labour force is infinite elastic and suffers from disguised unemployment and MP=0.
    Phase 2: there is a fall in average product since agricultural labourers have more the industrial sector. The real wage of industrial labourers reduces due to shortage of food supply, since there are lesser agricultural labourers. The decrease in real wage reduces the level of profit and surplus size that could be re-invested to further boost industrialization. It is important to note that so long as surplus exists, growth rate can still be increased without a full in industrialization.
    Phase 3: the amount of labour that moves from the agricultural to the modern sector depends on.
    ▪️The level of surplus growth generated within the primitive sector, the growth of industrial capital stock depends on industrial profit growth.
    ▪️ Population growth rate
    ▪️ The nature of industry’s progress and its associated bias.
    From the Lewis-Fei-Ranis model we understand that agricultural growth is equally as important as industrial growth, agricultural growth and industrial growth are balanced, the economy will be able to overcome the Malthusian population tarp only if the rate of labour shift from the primitive to the modern sector is larger than population growth rate.
    Landowners investment and government fiscal measures influence the shifting of labour. The private and social cost of shifting labour can be very high. Per capital agricultural consumption can increase and there is a wide gap between urban and rural wages. This changes leads to leakages that prevents the creation of agricultural surplus.
    Fei and Ranis strongly emphasize the interdependency of the industrial-agricultural sector and holds that a strong connection between the 2 sectors will speed up development. According to them economic growth is brought about in developing countries through the work of few numbers of entrepreneurs who have access to land and decision making powers and use industrial capital and consumer goods for agricultural practices.
    Fei and Ranis assume that there’s constant returns to scale in the industrial and agricultural sector and the main factors of production are capital and labour. In the Lewis-Fei-Ranis model the major source of labour supply to the industrial sector is the agricultural sector. Since Lewis placed little emphasis on agriculture sector Fei and Ranis placed greater value on agricultural and stated that the rate of industrial growth depends on the total amount of agricultural surplus and on the amount of Profit earned in the industrial sector.
    As a developing country advances there’s reallocation of labour from the agricultural to the modern sector. The essence of labour reallocation has lies in Engel’s law that states that the proportion of income spent on food decreases with an increase in the individual’s income level. Assuming 80% of labour force is involved in agricultural, 20% is left to the industrial sector. As productivity of agriculture increases it becomes possible for just 36% labour population to meet food supply satisfactory and as a result 64% of labour is now in the industrial sector. This is very much desired for an economy since the growth of industrial goods depends on the rate of per capital income and the growth of agriculture goods subject to the population growth rate. Labour reallocation is also important because with time consumers begin to want more consumer goods. Labour reallocation is necessary for producing more capital investment good.
    The Lewis-Fei-Ranis model also emphasise that government has a major role to play in the initial stages of growth. Government also need to work on the social and economic overheads by the construction of roads,bridges, railways and other capital projects.
    In the model we understand that there’s a possibility of growth without development. As technology led to a shift in labour saving production technique, growth of the economy takes place with increase in profit but no really economy development.
    CRITICISM OF LEWIS-FEI-RANIS MODEL
    ▪️It is emphasized that Fei and Ranis did not really understand the sluggish economic situation prevailing in developing countries. Feudalism inhibited development in developing countries.
    ▪️Fei-Ranis was criticised on the grounds that it assumed that the MPP of labour is zero during the early stage of Economic development, this is only true when agricultural labour is very large this therefore leads to a shift of labour to the cities. When labour in the cities is excess then they are absorbed in the informal sector.

    RELEVANCE OF THE LEWIS-FEI-RANIS MODEL IN NIGERIA
    This model is very important for developing nations as it explains the stages of economic development and why there’s a shift of labour concertration from the agricultural to the industrial sector. Although this is a slowing process. In Nigeria it’s no news that the majority of labour is employed in the agricultural sector. If this model is applied in understanding the Nigerian situation then we understand that when Economic development is happening in Nigeria they’ll be a shift of labour from the agric sector to the industrial sector. From this model we understand that government also has a major role to play in the Economic development of Nigeria by providing capital goods.
    Capital accumulation will also give the Nigerian economy a boost.

  22. Avatar Ali Chukwuemeka Japhet says:

    Name:ALI CHUKWUEMEKA JAPHET
    Reg no:2017/242427
    Japhet4chukwuemeka@gmail
    Dept: Economics

    THE HARRIS –TODARO MODEL OF MIGRATION

    INTRODUCTION
    Since the wage in cities is higher than one in rural area ,people migrate into the urban area hoping to get urban job. However, the probability of getting an urban job depends on the rate of employment in the urban area. However, given that the migrants are greater than the available job opportunities created , this will further create unemployment in the urban. Therefore, in many less-developed countries urban unemployment is a big issue. This essay attempted at expounding the Harris-Todaro Model of migration ,enumerating it’s basic characteristics, assumptions and core arguments .Furthermore, the policy and theoretical implications were delineated while relating it to the real world.
    BASIC CHARACTERISTICS OF HARRIS-TODARO MODEL OF RURAL-URBAN MIGRATION:
    1. Migration is stimulated primarily by rational economic consideration.
    2. Migration is decided on the basis of expected, rather than actual, urban-rural wage differentials.
    3. Probability of obtaining urban job is inversely related to the urban unemployment rate.

    ASSUMPTIONS OF THE HARRIS –TODARO MODEL OF MIGRATION
    The following are the underlying assumptions of the Harris -Todaro migration Model ;
    (1)Urban wage is institutionally and legally fixed .
    (2)Small open economy; the economy considered in Harris -Todaro model is a small open economy.
    (3)Two sector economy; One an agricultural rural sector and the other , manufacturing urban sector economy.
    (4)The capital –labor ratio and the factor reward ratio are in one to one relation with the relative price of the product.
    (5)There is equality between the probability of finding a job and the existing rate of employment.
    (6)In the rural agricultural sector, it is assumed that wages are flexible and equal to the marginal product of labor according to profit maximization.
    (7)The equilibrium is reached when the expected wage in urban areas is equal to the marginal product of an agricultural worker.
    (8)The Harris- Todaro model assumes the existence of perfect competition in the labour market.

    THE HARRIS-TODARO MODEL OF MIGRATION
    Historically, the Harris-Todaro Model can be traced to 1960s when the government of newly independent Kenya faced a difficult situation: Unemployment in Nairobi and other major cities was high and apparently rising. To cope with this problem, Agreements were reached in which private-sector and public-sector employers agreed to increase employment in exchange for unions agreeing to hold wages at their current levels. The larger number of jobs was expected to reduce unemployment. However, in the event, urban unemployment appeared to have increased following the Tripartite Agreements rather than decreased, as far as anyone could tell.
    In light of these events, John Harris and Michael Todaro formulated the Harris-Todaro model to explain the puzzle. Soon after the model was published, the government of Kenya followed the Harris-Todaro precepts by putting into place an integrated program of rural development. The result was that unemployment in Kenya fell .At the core of the Harris-Todaro model were the following features. First, real wages (adjusted for cost-of-living differences) are higher in urban formal-sector jobs than in rural traditional-sector jobs. Second, to be hired for a formal-sector job, one has to be physically present in the urban areas where the formal-sector jobs are located. Third, and as a consequence of the first two features, more workers search for formal-sector jobs than are hired, employers hire some of the job seekers but not all of them, and those not hired end up unemployed. The Harris-Todaro model produced two powerful policy results. The first concerns the policy of formal-sector job creation to employ the unemployed (who, in the Harris-Todaro model, are all in urban areas, because that is where the formal-sector jobs are assumed to be located). Such a policy, they concluded, would increase the formal sector labor force by more than the number of new jobs created, thereby raising the number of urban unemployed. Thus, the solution to urban unemployment is not to create urban employment.
    The second policy option that Harris and Todaro considered was a policy of rural development. If such a program could increase the rural traditional-sector wage, unemployment would then fall. Thus, in the Harris-Todaro model, the solution to urban unemployment is rural development.
    Harris and Todaro’s fundamental contribution was building a model that fit the stylized facts of the labor market they were analyzing and that was based on sound micro foundations. The fact that the model remains part of the economist’s intellectual toolkit today is a tribute to its basic insight and enduring analytic power. Harris and Todaro formulated general processes for determining prices of the products produced by the two sectors and also for determining a rural-sector wage that varies inversely with the number of people in the rural sector. A simplified version of the Harris-Todaro model was developed in which product prices and rural-sector wages are taken as constant. Numerous additional analytic and policy results were derived in the simplified Harris-Todaro model. At the same time, some of the assumptions of the Harris-Todaro model were judged to be too restrictive, and so the model was generalized in the years that followed to nest their specific formulation within a broader framework. The initial Harris-Todaro model has been extended to allow for on-the-job search from a rural agriculture setting, the existence of an urban informal sector, preferential hiring of the better-educated, employment fixity, duality of production conditions and earnings levels within the rural sector, capital mobility, endogenous urban wage setting, risk aversion, and a system of demand for goods, among other factors.
    In terms of pro-poor economic growth, the Harris-Todaro model and other multisector-labor-market models can help policy makers avoid two mistakes. One is to assume that development efforts should be channeled to the sectors where the poor are. The other is to assume that efforts should always be focused on getting the poor out of the sectors in which they now are. Careful cost-benefit analysis based on well-specified labor-market models is required to decide among such alternatives.

    fI1:Equilibrium in Harris-Todaro model
    In Harris –Todaro Model, Equilibrium is attained when the expected rural wage is equal to the rural wage.fom our diagram , equilibrium is attained at ‘E’ where the demand for labour in rural-agricultural area equals demand for labour in urban-manufacturing area.
    THE HARRIS –TODARO MODEL OF MIGRATION :A CASE STUDY OF BOTSWANA
    A study of migration behavior conducted by Robert E. B. Lucas in Botswana addressed such problems in one of the most careful empirical studies of migration in a developing country. His econometric model consisted of four groups of equations—for employment, earnings, internal migration, and migration to South Africa. Each group was estimated from microeconomic data on individual migrants and non migrants. Very detailed demographic information was used in the survey. Rural migrants in Botswana moved to five urban centers as well as to neighboring South Africa. Lucas found that unadjusted urban earnings were much higher than rural earnings—68% higher for males—but these differences became much smaller when schooling and experience were controlled for. Lucas’s results confirm that the higher a person’s expected earnings and the higher the estimated probability of employment after a move to an urban center, the greater the chances that the person will migrate. And the higher the estimated wage and probability of employment for a person in his or her home village, the lower the chances that the person will migrate. This result was very “robust”—not sensitive to which subgroups were examined or the way various factors were controlled for—and statistically significant. It represents clear evidence in support of Todaro’s original hypothesis. Moreover, Lucas estimated that at current pay differentials, the creation of one job in an urban center would draw more than one new migrant from the rural areas, thus confirming the Harris-Todaro effect. Earnings were also found to rise significantly the longer a migrant had been in an urban center, holding education and age constant. But the reason was because of increases in the rate of pay rather than in the probability of modern-sector employment. Taken together, the best-conducted studies of urbanization confirm the value of probabilistic migration models as the appropriate place to start seeking explanations of rural-to-urban migration in developing countries. But these studies underscore the need to expand these explanations of migration, considering that many people today migrate to participate in the informal rather than the formal urban sector and that workers may face a variety of risks.

    THE POLICY IMPLICATIONS OF THE HARRIS-TODARO MODEL OF MIGRATION:
    The Harris-Todaro model has far-reaching implications from the policy point of view. For example, if the government of the country concerned were successful in fostering industrial development in an urban area, employment would increase there.
    The effect would be to increase the subjective productivity of getting urban employment in the minds of rural inhabitants. Migration would increase and the eventual effect of the new industrial development could be that urban unemployment becomes higher that the level prevailing before the new development took place.
    There will be some level of urban employment which ensures equilibrium in the sense that no further migration takes place. Potential migrants may take a long-term view in arriving at a decision. They may consider that their desireness of obtaining an urban job will be higher after a waiting period of some months. Thus they will compare the present value of the sum of expected urban earnings with that of expected rural earnings.
    They may be content to accept a low wage in the urban informal sector for some time. This might be a rational decision on a long-term basis. The root of the problem is the large difference between earnings in the modern industrial sector and those in the rural areas.
    Often the former are well above the market clearing levels for varies reasory. The long-term solution to the problem lies in adopting policies for both urban and rural areas which reduces the real income differences between the two areas.
    THEORETICAL IMPLICATION OF THE HARRIS-TODARO MODEL OF MIGRATION
    There is no denying the fact that any development project can be evaluated using social cost- benefit analysis. An important part of the social cost of any input is opportunity cost, its value in its next best alternative use. Labour hired for an urban formal-sector project might well be drawn from the urban informal sector also.
    The worker who moves out of the urban informal sector may, in turn, be replaced by someone from the rural sector. In this case, the output lost is that of the worker who was formerly in the rural sector, i.e., the worker at the end of the employment chain. For this reason, some analysts believe that the wage paid to casual agricultural laborers provides a good measure of the social cost of unskilled labour.
    However, this measure, although a good indicator of output foregone through labour reallocation, probably understates the true social cost of employing labour, which has other components that are likely to be significant. One such component is induced migration. No doubt there are both pull and push factors behind internal labour migration that occurs in the course of economic development from rural to urban areas.
    Such migration can result either from favourable economic developments in the towns or from adverse developments in the rural areas. The Harris-Todaro model integrates these two sets of forces in their analysis of the process of labour reallocation that is likely to occur during economic development. This is why the model was sort of innovation in the literature of development economics when it appeared for the first time in 1970’s.

    CONCLUSION
    Harris – Todaro model explains some issues of rural-urban migration. This migration happens in case when expected rural income is higher than rural wages. In this case economy may have high rates of unemployment. The equilibrium condition of this model is when expected rural wage is equal to rural wage. When government subsidize manufacturing sector Harris Todaro effect may happen. According to the authors job creation instead of dealing with unemployment problem actually may cause increase of unemployment. This happens when urban-rural wage differential is high enough, so rural workers move to the cities hoping to find a job with high wage. Obviously, not all these workers succeed in finding jobs which leads to unemployment.As Harris and Todaro suggested the first-best policy would be subsidizing manufacturing along with restrictions of rural migration.

  23. ASSUMPTIONS OF HARRY’S AND TODARO MODEL OF MIGRATION (DEVELOPMENT ECONOMICS)

    AYOGU UCHECHI EUPHEMIA
    2017/244738

    ASSUMPTIONS OF THE LEWIS FEI-RANIS MODEL

    Lewis in 1954 proposed a seminal theory of dualistic economic development for over-populated and under-developed economies with vast amounts of surplus agricultural labour for which he was later to be awarded the 1979 Nobel Prize in Economics. Economic growth in such an economy can be achieved by rapid capital accumulation in the non-agricultural (industrial and service) sector, facilitated by drawing surplus labour in the agricultural sector. In the Lewis theory, an economy transits from the first, labour-surplus “stage” to the second, labour-scarce “stage” of development. Later, Ranis and Fei in 1961 formalised the Lewis theory and defined three “phases” of dualistic economic development by sub-dividing the first stage in the Lewis model into two phases. Thus, the second labour-scarce stage of the Lewis model corresponds to phase three of the Ranis-Fei model. These three phases, are distinguished by the marginal productivity of agricultural labour.
    The entry into each phase is marked three turning points:
    • The breakout point leads to phase one growth with redundant agricultural labour.
    • The shortage point leads to phase two growth with disguised agricultural unemployment and
    • The commercialisation point leads to phase three of self-sustaining economic growth with the commercialisation of the agricultural sector.

    The Lewis-Ranis-Fei theory of dualistic economic development therefore provides a suitable theoretical framework for studying the growth path of labour-surplus developing economies such as China.

    ASSUMPTIONS OF THE MODELS

    The basic assumption of the model is that there exists surplus labour in the subsistence sectors. It includes labour whose marginal productivity is zero as well as that whose marginal productivity is positive but is less than the institutional wage.

    Lewis model makes the following assumptions:

    (i) There is a duel economy i.e., the economy is characterized by a traditional, over-populated rural subsistence sector furnished with zero MPL, and the high productivity modern urban industrial sector.

    (ii) The subsistence sector does not make the use of ‘Reproducible Capital’, while the modern sector uses the produced means of capital.

    (iii) The production in the advanced sector is higher than the production in traditional and backward sector.

    (iv) According to Lewis, the supply of labor is perfectly elastic. In other words, the supply of labor is greater than demand for labor.

    The followings are the sources of unlimited supply of labor in China.

    (i) Because of severe increase in population, more than required number of labors are working with lands, the so called disguised unemployed.

    (ii) In China, so many people are having temporary and part time jobs, as the shoe-shines, loaders, porters and waiters etc. There will be no fall in the production even their number are one halved.

    (iii) The landlords and feudals are having an army of tenants for the sake of their influence, power and prestige. They do not make any contribution towards production, and they are prepared to work even at less than subsistence wages.

    (iv) The women in China do not work, but they just perform house-hold duties. Thus they also represent unemployment.

    (v) The high birth rate in UDCs leads to grow unemployment.

    Basic Thesis of the Lewis Model

    Lewis model is a classical type model which states that the unlimited supplies of labor can be had at the prevailing subsistence wages. The industrial and advanced modern sector can be developed on the basis of agri. to traditional sector. This can be done by transferring the labor from traditional sector and modern sector.

    Lewis says that the wages in industrial sector remain constant. Consequently, the capitalists will earn ‘surplus’. Such surplus will be re-invested in the modern sector leading to absorb the labor which are migrated from subsistence sector. In this way, the surplus labor or the labor which were prey to disguised unemployment will get the employment. Thus both the labor transfer and modern sector employment growth are brought about by output expansion in that sector. The speed with which this expansion occurs is determined by the rate of industrial investment and capital accumulation in the modern sector. Though the wages have been assumed constant, yet Lewis says that the urban wages are at least 30% higher than average rural income to induce the workers to migrate from their home areas.

    In the fig., the production function regarding traditional sector has been demonstrated. Here in the upper part of the fig., by employing LF of labor, the OT of food production has been produced, while the amount of capital is fixed here. In the lower part of figure we have APL and MPL in the subsistence farming sector which have been derived from the TPF curve in the upper part of the fig. This is the behavior of a UDC where 80% to 90% of population lives and works in rural areas.

    Lewis makes two assumptions regarding traditional sector:

    (i) There is surplus labor because MPL = 0 (as MPLF curve cuts x-axis).

    (ii) All rural workers share equally in the output so that rural real wage is determined by the APL, and not by MPL. Thus it is OA, which has been attained by dividing OT by OLF labor in subsistence sector.

    the upper segment we have the production functions regarding modern industrial sector. In case OL, labor are employed, having the production function TPM(K1), TP1 is being produced. In the lower segment of fig., the demand for labor is D1(K1) at the constant wages (OW) which are 30% higher than the average rural wages.

    In the Lewis model, the modern sector capital stock is allowed to increase from K1 to K2 and K3 as a result of reinvestment of profits by capitalist industrialists. This causes the TP curve in the upper part of fig., to shift upward from TPM(K1) to TPM(K2) and to TPM(K3).

    The process that will generate these capitalistic profits for reinvestment and growth is illustrated in the lower part of fig. (b).
    The modern sector MPL curves have been derived from the TPM curves of the upper part of the fig. (b).
    These curves are demand for labor curve because of assumption of perfect competition.

    The OA in both lower parts of fig (a) and (b) represents the average level of real subsistence income in the traditional rural sector. But in the modern sector the real wages have been represented by OW (the 30% higher than rural wages).

    At such wages the supply of rural labor is assumed to be unlimited or perfectly elastic as shown by WSL curve in fig (b). This means that modern sector employer can hire as much labor as he likes without any fear of rise in wages. It is also told that in traditional sector the supply of labor is in the millions, while the employment in modern sector is in thousands. In the modern sector the employment is made by the employer to the point where MPL = W. (the point F in the lower part of fig. (b). Thus the basic employment is OL1, with this employment of labor CD1FL, output in manufacturing sector is being produced. While the share of such employed labor will be OWFL1.

    The balance of output shown by the shaded area WD1F would be the total profits (surplus) that accrue to the capitalists. As Lewis assumes that all of these profits are reinvested, the total stock of capital in the modern sector will rise from K1 to K2. As a result, TPM will shift from TPM(K1) to TPM(K2) which in a turn leads to increase MPL. In other words, the demand for labor will increase as shown by the curve D2(K2) in the lower part of fig (b).

    Now the new equilibrium in the modern sector takes place at point G where OL2 labor are being employed. The total output rises to OTP2 or OD2GL2 while total wages and profits increase to OWGL2 and WD2G, respectively. Once again, these larger (WD2G) profits are reinvested, the total stock of capital will increase to K3. Again the TP curve will shift upward, as the TPM(K3), and demand for labor curve will shift to D3(K3).

    CONCLUSION
    From the assumptions of the model, the process of modern self sustaining growth and employment expansion will continue till all the surplus rural labor is absorbed in the new industrial sector. Thereafter, additional workers can be withdrawn from agri. sector only at a higher cost of lost food production because this will decrease the labor to land ratios. In this way, the MPL will be no more zero. Here, labor supply curve will become positively sloped along with the growth of modern sector. The structural transformation of the economy will take place through shifting traditional rural agriculture to modern urban industry.

  24. UNIVERSITY OF NIGERIA, NSUKKA
    FACULTY OF EDUCATION
    DEPARTMENT OF EDUCATION ECONOMICS

    TOPIC
    HARRY’S AND TODARO MODEL OF MIGRATION

    AN
    ASSIGNMENT WRITTEN IN PARTIAL FULFILMENT OF THE COURSE ECO 361 (DEVELOPMENT ECONOMICS)

    BY
    AYOGU UCHECHI EUPHEMIA
    2017/244738

    LECTURER: OLISA EMEKA

    MARCH, 2021

    ASSUMPTIONS OF THE LEWIS FEI-RANIS MODEL

    Lewis in 1954 proposed a seminal theory of dualistic economic development for over-populated and under-developed economies with vast amounts of surplus agricultural labour for which he was later to be awarded the 1979 Nobel Prize in Economics. Economic growth in such an economy can be achieved by rapid capital accumulation in the non-agricultural (industrial and service) sector, facilitated by drawing surplus labour in the agricultural sector. In the Lewis theory, an economy transits from the first, labour-surplus “stage” to the second, labour-scarce “stage” of development. Later, Ranis and Fei in 1961 formalised the Lewis theory and defined three “phases” of dualistic economic development by sub-dividing the first stage in the Lewis model into two phases. Thus, the second labour-scarce stage of the Lewis model corresponds to phase three of the Ranis-Fei model. These three phases, are distinguished by the marginal productivity of agricultural labour.
    The entry into each phase is marked three turning points:
    • The breakout point leads to phase one growth with redundant agricultural labour.
    • The shortage point leads to phase two growth with disguised agricultural unemployment and
    • The commercialisation point leads to phase three of self-sustaining economic growth with the commercialisation of the agricultural sector.

    The Lewis-Ranis-Fei theory of dualistic economic development therefore provides a suitable theoretical framework for studying the growth path of labour-surplus developing economies such as China.

    ASSUMPTIONS OF THE MODELS

    The basic assumption of the model is that there exists surplus labour in the subsistence sectors. It includes labour whose marginal productivity is zero as well as that whose marginal productivity is positive but is less than the institutional wage.

    Lewis model makes the following assumptions:

    (i) There is a duel economy i.e., the economy is characterized by a traditional, over-populated rural subsistence sector furnished with zero MPL, and the high productivity modern urban industrial sector.

    (ii) The subsistence sector does not make the use of ‘Reproducible Capital’, while the modern sector uses the produced means of capital.

    (iii) The production in the advanced sector is higher than the production in traditional and backward sector.

    (iv) According to Lewis, the supply of labor is perfectly elastic. In other words, the supply of labor is greater than demand for labor.

    The followings are the sources of unlimited supply of labor in China.

    (i) Because of severe increase in population, more than required number of labors are working with lands, the so called disguised unemployed.

    (ii) In China, so many people are having temporary and part time jobs, as the shoe-shines, loaders, porters and waiters etc. There will be no fall in the production even their number are one halved.

    (iii) The landlords and feudals are having an army of tenants for the sake of their influence, power and prestige. They do not make any contribution towards production, and they are prepared to work even at less than subsistence wages.

    (iv) The women in China do not work, but they just perform house-hold duties. Thus they also represent unemployment.

    (v) The high birth rate in UDCs leads to grow unemployment.

    Basic Thesis of the Lewis Model

    Lewis model is a classical type model which states that the unlimited supplies of labor can be had at the prevailing subsistence wages. The industrial and advanced modern sector can be developed on the basis of agri. to traditional sector. This can be done by transferring the labor from traditional sector and modern sector.

    Lewis says that the wages in industrial sector remain constant. Consequently, the capitalists will earn ‘surplus’. Such surplus will be re-invested in the modern sector leading to absorb the labor which are migrated from subsistence sector. In this way, the surplus labor or the labor which were prey to disguised unemployment will get the employment. Thus both the labor transfer and modern sector employment growth are brought about by output expansion in that sector. The speed with which this expansion occurs is determined by the rate of industrial investment and capital accumulation in the modern sector. Though the wages have been assumed constant, yet Lewis says that the urban wages are at least 30% higher than average rural income to induce the workers to migrate from their home areas.
    the production function regarding traditional sector has been demonstrated. Here in the upper part of the fig., by employing LF of labor, the OT of food production has been produced, while the amount of capital is fixed here. In the lower part of figure we have APL and MPL in the subsistence farming sector which have been derived from the TPF curve in the upper part of the fig. This is the behavior of a UDC where 80% to 90% of population lives and works in rural areas.

    Lewis makes two assumptions regarding traditional sector:

    (i) There is surplus labor because MPL = 0 (as MPLF curve cuts x-axis).

    (ii) All rural workers share equally in the output so that rural real wage is determined by the APL, and not by MPL. Thus it is OA, which has been attained by dividing OT by OLF labor in subsistence sector.

    the upper segment we have the production functions regarding modern industrial sector. In case OL, labor are employed, having the production function TPM(K1), TP1 is being produced. In the lower segment of fig., the demand for labor is D1(K1) at the constant wages (OW) which are 30% higher than the average rural wages.

    In the Lewis model, the modern sector capital stock is allowed to increase from K1 to K2 and K3 as a result of reinvestment of profits by capitalist industrialists. This causes the TP curve in the upper part of fig., to shift upward from TPM(K1) to TPM(K2) and to TPM(K3).

    The process that will generate these capitalistic profits for reinvestment and growth is illustrated in the lower part of fig. (b).
    The modern sector MPL curves have been derived from the TPM curves of the upper part of the fig. (b).
    These curves are demand for labor curve because of assumption of perfect competition.

    The OA in both lower parts of fig (a) and (b) represents the average level of real subsistence income in the traditional rural sector. But in the modern sector the real wages have been represented by OW (the 30% higher than rural wages).

    At such wages the supply of rural labor is assumed to be unlimited or perfectly elastic as shown by WSL curve in fig (b). This means that modern sector employer can hire as much labor as he likes without any fear of rise in wages. It is also told that in traditional sector the supply of labor is in the millions, while the employment in modern sector is in thousands. In the modern sector the employment is made by the employer to the point where MPL = W. (the point F in the lower part of fig. (b). Thus the basic employment is OL1, with this employment of labor CD1FL, output in manufacturing sector is being produced. While the share of such employed labor will be OWFL1.

    The balance of output shown by the shaded area WD1F would be the total profits (surplus) that accrue to the capitalists. As Lewis assumes that all of these profits are reinvested, the total stock of capital in the modern sector will rise from K1 to K2. As a result, TPM will shift from TPM(K1) to TPM(K2) which in a turn leads to increase MPL. In other words, the demand for labor will increase as shown by the curve D2(K2) in the lower part of fig (b).

    Now the new equilibrium in the modern sector takes place at point G where OL2 labor are being employed. The total output rises to OTP2 or OD2GL2 while total wages and profits increase to OWGL2 and WD2G, respectively. Once again, these larger (WD2G) profits are reinvested, the total stock of capital will increase to K3. Again the TP curve will shift upward, as the TPM(K3), and demand for labor curve will shift to D3(K3).

    CONCLUSION
    From the assumptions of the model, the process of modern self sustaining growth and employment expansion will continue till all the surplus rural labor is absorbed in the new industrial sector. Thereafter, additional workers can be withdrawn from agri. sector only at a higher cost of lost food production because this will decrease the labor to land ratios. In this way, the MPL will be no more zero. Here, labor supply curve will become positively sloped along with the growth of modern sector. The structural transformation of the economy will take place through shifting traditional rural agriculture to modern urban industry.

  25. Avatar Urama Samson Chibueze 2017/249591 says:

    LEWIS FEI RANIS MODEL
    A prominent Economist Lewis was well known with his model “Economic Development with unlimited supplies of Labour”. This model pictured the capital accumulation in the modern industrial sector with the aim of getting labour from the subsistence agricultural sector. The model was further modified by Fei and Ranis, but the essence of the two models is the same. The Lewis model and that of Fei-Ranis assume the existence of surplus labour in the economy, the main component of which is the enormous disguised unemployment in agriculture. Further they visualize ‘dual economic structure’ with manufacturing, mines and plantations representing the modern sector, the salient features of which are the use of reproducible capital, production for market and for the profit, employing labour on wage payment basis and modern methods of industrial organization. Furthermore, agriculture represents the subsistence sector using non-reproductive land on self-employment basis and producing mainly for self-consumption with inferior techniques of production and containing surplus labour in the form of disguised unemployment. Hence, the productivity or output per head in the modern sector is much longer than that in agriculture. Though the marginal productivity in agriculture over a wide range is taken to be zero, the average productivity is assumed to be positive and equal to the bare subsistence level.

    ANALYSIS OF THE LEWIS MODEL
    The authenticity of the Labour-surplus model of Lewis for developing countries like Nigeria; depend of course on the extent to which their underlying assumptions, explicitly or implicitly, made in this model. In our views the basic premise of this model is wrong and that it unrealistic and irrelevant for framing a suitably development strategy to solve the problem of surplus labour and unemployment. The basic premise of the model is that industrial growth can generate adequate employment opportunities so as to draw away all the surplus labour from agriculture in an overpopulated developing country like Nigeria where population is currently increasing at the annual rate of around 1.6%. This premise has been proved to be a myth in the light of generation of little employment opportunities in the organized industrial sector during over sixty years of economic development in India, Latin American and African countries.
    Putting India into consideration, for instance, in the 30 years (1951-81) of industrial development in India during which fairly good rates of industrial production had been achieved, the organized industrial employment increased by any 3 million which was too meager to make any significant impact on the urban unemployment situation far from providing a southern to rate labour-surplus problem in agriculture. Thus the generation of adequate employment opportunities and as a result the absorption of surplus labour from agriculture in the expanding industrial sector has not proceeded as predicted by the Lewis model.
    One can notice that the migration of workers for example in Nigeria has occurred as a result of urbanization in the various censuses but these immigrants to the urban area has not been absorbed into modern high productivity employment, as pictured by Lewis Fei Rranis. These immigrants to urban areas have been mainly employed in petty trade and domestic services in the country.

    THE MODEL WITH SURPLUS LABOUR
    In the model, the wage rate is put into consideration; such wage in the modern industrial sector is determined by the average productivity in the agriculture. To this average productivity is added a margin, According to Lewis this margin is fixed at 30% which is required for furnishing an incentive for labourers to transfer themselves from the countryside to the urban industries as well as for melting the higher cost of urban living. In this setting, the model shows how the expansion in the industrial investment and production or, in other words, capital accumulation outside agriculture will generate sufficient employment opportunities so as to absorb all the surplus labour from agriculture and elsewhere.
    Furthermore, profit in the Lewis ‘unlimited supply of labour constitutes the main source of capital formation. The greater the share of profits in national income,the greater the rate of savings and capital accumulation. Thus with the expansion of the modern or capitalist sector, the rate of saving and investments as percentage of national income will continuously rise. As a result rate of capital accumulation will also increase relative to national income. It is of course assumed that all proofs or a greater part of the profits is saved and automatically invested. It will be important to note that as the capitalist expands, the share of profits in national product will rise. The rise in the share of profits in national product is due to the assumption of the model that wage rate remains constant and prices of the products produced by the capitalist sector do not fall with the expansion in output. To quote Lewis himself, “If unlimited supplies of labour are available at constant real wage rate, and if any part of the profits is reinvested in productive capacity, profits will grow continuous relative to the national income.”

    ASSUMPTIONS AND CRITICISM OF THE MODEL
    Labour-absorptive capacity of the modern industrial sector: Lewis Fei and Ranis assumed that the growth of industrial employment will be greater than the growth in labour force. This is one of their shortcomings, they believed only then the organized industrial sector can absorb surplus labour from agriculture. The employment far from withdrawing labour currently employed in the organized industries and services, in the basis to absorb the new entrants to the labour force.
    One of the important setbacks of the Lewis model is that it has neglected the important of agricultural growth in sustaining capital formation in the modern industrial sector. When as a result of the expansion of capitalist modern sector, transfer of labour form agriculture to industry takes place, the demand for food grains will rise. If the output of food grains does not increase through agricultural development to meet the additional demand for food grains wages of industrial labour will slow down or even choke off the process of capital accumulation and economic development. Thus, if no allowance is made for agricultural growth, the expansion of modern sector and capital accumulation is bound to be halted.
    Lewis model neglects the importance of Labour Absorption in Agriculture: We can find weaknesses in the models of Lewis and Fei-Ranis in the scenario that they have ignored the generation of productive employment in agriculture. No doubt, Lewis is this later writings and Fei-ranis in their modified and extended version of Lewis model have pictured and important role for agricultural development so as to sustain industrial growth and capital accumulation. But they visualize such an agricultural development strategy that will release labour force form agriculture rather than absorbing them in agriculture. Thus, to quote Fei and Ranis: “In such a dualistic setting the heart of the development problem lies in the gradual shifting of the economy’s centre of gravity from the agricultural to the industrial sector through labour reallocation.” In this process each sector is call upon to perform a special role: productivity in the agricultural sector must rise sufficiently so that “smaller fraction of the total population can support the entire economy” with food and raw materials, thus enabling agricultural workers to released; simultaneously, the industrial sector must expand sufficiently to provide employed opportunities for the released workers….labour reallocation must be rapid enough to swamp massive population increase if the economy’s centre of gravity is to be shifted over time.”
    The above shows that employment potential of organized industrial sector is so little that labour reallocation between agriculture and industry and “smaller fraction of the total population being employed in agriculture” is just not possible in labour-surplus developing countries like India. Indeed, a good amount of employment opportunities can be generated in agriculture itself by capital accumulation in agriculture, adoptive proper agricultural technologies and making appropriate institutional reforms in the pattern of land ownership. Even about the African countries most of which do not suffer from the Malthusian problem of overpopulation but are currently faced with acute urban unemployment (especially of what is known as “UNEMPLOYMENT OF SCHOOL LEAVERS” majority of which have migrated from the villages to the urban areas) the expert opinion was veered round to the view of seeking solution of labour-surplus problem within agriculture.

    CONCLUSIONS

    In the above explanations, we could figure out difference lapses of the model, other than that, the model still maintains high degree of analytical value. It clearly points out the role of capital accumulative in raising the level of output and employment in labour-surplus developing countries. The model stipulates the systematic analysis of the growth problem of dual economies and brings out some of crucial importance of such factors as profits and wages rate of capital accumulation and economic growth. It also stipulates relationship in growth process most

    TODARO MODEL OF MIGRATION .
    Prominent men behind this model are John R. Harris and Michael Todaro, this model was developed in 1970 and used in development economics and welfare economics to undertand issues con.cerning rural-urban migration. Major 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. In the model, an equilibrium is attained when the expected wage in urban areas is equal to the marginal product of an agricultural worker. Partially like the classical, the model assumes that unemployment does not exist in the rural agricultural sector. It is also assumed that rural agricultural production and the subsequent labour market is perfectly competitive, because of this the wage equals the marginal productivity.In equilibrium, the rural to urban migration rate will be zero since the expected rural income equals the expected urban inomes.

    ASSUMPTIONS OF THE MODEL, TOGETHER WITH IT’S APPLICATION TO REAL LIFE SITUATIONS
    Here, we discuss the assumptions together with the equations that describes them. The structure of the model is based on the assumption that a fixed wage leads to an outbreak of distortion and urban unemployment. In the model, we have two sectors , Sector one Agricultural rural sector, sector two manufacturing urban sector.There are three kinds of production factors, specific production factor in sector 1, K1, specific production factor in sector 2, K2, and labor, L, which is employed in both sectors and mobile between sectors.The specific production factor in the urban sector, K2, includes not only equipment and facilities for production but also social infrastructure, such as airports, roads, and industrial parks, which are related to production. Therefore, an improvement of the social infrastructure means an increase in K2.
    Quoting Harris Todaro,”In the Harris–Todaro model, the necessary and sufficient condition for the increase in the specific production factor in the urban sector to decrease urban unemployment is that the slope of the marginal product curve of labor in the rural sector exceeds the per-capita wage difference between the institutional minimum wage and the expected wage in the urban sector”.
    Putting agricultural productivity into consideration, if the productivity of Agricultural products rises together with the income of the individual,invariably, there would be no need for the rural workers to migrate to the urban area. Mostly in some of the Asian countries developing infrastructurrs such as industrial parks, roads e.t.c gives rise to the model. In the case of metro cebu, in Philippines, the Todaro paradox occurred in 1990s. As the Metro Cebu economy developed with ODA projects supported by the Japanese Government, workers from surrounding areas migrated to the region and increased urban unemployment.

    CONCLUSIONS
    Talking about the economy of the less developed country, the capital accumulation is very important, The accumulated capital forms many production bases and creates job opportunities in the urban sector.At the same time, the increase in employment raises the wage level in the urban sector. In the Harris–Todaro model, the rising urban wage pushes up the expected wage in the urban sector and consequently encourages workers to migrate from the rural sector to the urban sector.

  26. Avatar Ezeja Johnbosco Chinedu 2017/249505 says:

    Harrod of England and Professor Evesey Domar of the United States. They were of the view that a country’s level of output was being influenced or determined directly by the net-savings ratio (s) and inversely by the capital-output ratio (c). That is, ∆Y/Y = s/c. This growth model was however criticized in the issue that it only focused on the capital-output ratio which is how many units of capital could be used to produce a unit of output. It did not take into consideration those poor countries with low capital formation as their growth was actually limited to the amount or level of capital that country had or could raise. These growth models were known as or referred to as “orthodox” by Corden and Findley (1971).
    Asides this model, there is also the most influential dualistic framework which is that of Lewis (1954). The idea of surplus labour, subsistence wages in the development of a dualistic economy in Lewis (1954) was later diagrammatically formalized by Ranis and Fei (1961). These two also showed how agricultural surplus could lead to the growth of industries. The common characteristics of the dualistic theories brought up as well as other alike models include the following:
    No unemployment in the modern sector.
    The sectoral wage differential is assumed fixed or proportional to the wage level in the urban sector.
    The new or modern thinking were later brought up of the notable was the one propounded by Michael Todaro (1969) and John Harris (Harris and Todaro 1970). The Harris-Todaro Model is an equilibrium version of the Todaro Migration Model which forecasts and explains the rural-urban migration as an economically rational process despite the high urban unemployment. The migrants calculate the value of the urban expected income or its equivalent and move of it is more than the average rural income. The importance of this was as a result of the Keynesian Revolution is that “equilibrium could occur or come about even when there is a chronic level of unemployment in the urban sector”. This implies that the economy would still or could still be in balance even with the existence of a severe urban unemployment. It has also been deduced that the most important factor why urban population was more than of the rural sector was due to the fact that labour from the rural sector moved to the urban sector in search of “greener pastures”.
    In the situation of a dualistic model, the rural sector is letting go of much labour too quickly while the urban sector is hiring or accepting labour too slowly as it is assumed that the urban sector is capital-intensive (Lewis 1965). The manifestations of the employment problem in the urban areas as much labour get unemployed is the outcome of the poverty and underemployment in the Third World Countries (Lubell 1988). It has also been recognized that labour migration was due to the fact that the rural-urban wages were different compared to each other. The contribution of Todaro is the introduction of the possibility of employment as a factor in the decision-making process of a potential migrant. He devised what he called a two-stage process in the less-developed countries.
    The first stage is characterized by where the labour migrant decides to move from the rural sector for a period of time (that is, from the traditional informal sector). The second stage is then reached when that labour migrant has gotten a more permanent job in the modern or urban sector. So the two-stage process is simply involving first, when the labour migrant resolves to leave his place in the rural sector for a certain time period and second, the labour migrant finds a more permanent job in the urban sector. However, Todaro and some others did not take into consideration the informal urban sector explicitly as its employees were usually underemployed as they were not distinguished from the unemployed as they made no income of their own but relied on their relatives as explained of the informal sector by Lewis (1954).
    According to Todaro, the probability or tendency of getting a job depends on the size of the urban population that is employed, number of newly created jobs in the urban sector, as well as the length or duration a labour migrant has been in that sector. Consequently it implied that according to Todaro, the longer a labour migrant has been in the manufacturing sector, the more likely he or she is to get a job there. An extension of this was done by Harris and Todaro (1970), where they explained that the urban wage is equal or equivalent to the expected value of the urban wage and this formed the notable Harris-Todaro Equation which is of the form:
    Wa = βWm where,
    Wa = Flexible wage in the agricultural sector is equal to the value of the marginal product in that sector, β = Probability of employment (dependent on the three (3) factors listed earlier), and Wm = Wage in the manufacturing sector which is assumed fixed or constant institutionally either because of the involvement of the union’s activities or a friendly government towards the workers in the modern sector. This is unlike in the orthodox models where the wage difference in the rural-urban sectors is not fixed or constant.

    THE BASIC MODEL
    The Harris-Todaro Model would be referred to as the H – T Model from henceforth, assume that migration from the rural to the urban areas depends primarily on the difference in wages between the rural and urban labour markets (which is the wage differential). That is the expected urban wage is the actual urban wage multiplied by the probability of getting a job, or Weu = PWu where,
    Weu = Expected Urban Wage and P = Probability of getting a job where P is expressed as: P = where,

    Eu = Urban Employment, Uu = Urban Unemployment and L = Total Labour Force. Another assumption of the Harris-Todaro is that all the members of the urban labour force have equal chances of obtaining or getting the jobs available for them. So Weu = Urban Wage multiplied by the Urban Employment Rate.

    POLICY IMPLICATIONS OF THE H – T MODEL
    The H – T Model has some impressing implications from the policy point of view. Let’s take for an instance, if the government of a country is concerned with fostering industrial development in an urban area, employment would increase and this would lead to an increase in productive of getting urban employment in the minds of the rural inhabitants. Migration to the urban area would then increase and the outcome would be that the unemployment rate in the urban areas would rise more than how it was before the development industrially occurred. Due to this, labour migrants would prefer to accept the wage in the urban informal sector than going back to wait for long for jobs that would not come in time as urban employment is now in equilibrium. However, the effect of this is that the earnings in the urban modern industrial sectors would be more or higher than those in the rural traditional sectors. The long-term solution to this issue would be to fix a wage policy for the two sectors that would reduce the real income differences between the two sectors.

    THE ASSUMPTIONS OF THE MODEL
    In analyzing the H – T Model, there are some assumptions alongside those listed before which include:
    There is fixed amounts of labour (L) and capital (K) factor inputs.
    Capital is fully employed but labour unemployment exists in the urban sector due to the fixed urban wage, W is higher than the flexible rural wage, w.
    The economy is small and imports the urban output, X and exports the agricultural output, Y which is used as a numeraire.

    MATHEMATICAL EXPRESSION OF THE MODEL
    Let Lj and Kj represent the labour and capital factor inputs employed in the sectors respectively, we then have the output of the urban manufacturing sector to be of the form: X = F (Lx, Kx) and the output of the rural agricultural sector to be of the form: Y = G (Ly, Ky).
    Due to the wage inflexibility in the manufacturing sector, some form of unemployment would exist in the urban sector. The profit of the urban sector would therefore equal: Πx = PF – WLX – rKx, where P = Producer’s price of the urban output and W = Fixed value of urban wage. The profit of the rural sector would be of the form: Πy = G – wLY – rKY, where w = Flexible value of rural wage and the price of the numeraire Y is unity or equal to one (1). The first-order conditions for the optimal labour employment are: PFL – W = 0; GL – w = 0. These give the conditional labour demand functions: Lx = Lx (Kx, P, W) and LY = LY (KY, P, w).
    The rural wage w = the expected urban wage. Therefore, the relationship between the two wages in the two sectors is explained by the H – T conditions which are:
    w = βW = where β = which is the probability of getting

    employed and λ = Lu/Lx = Relative Unemployment in the urban sector.

    COMPARISON WITH THE REAL WORLD
    The successful East Asian Countries of Taiwan, Korea, and Singapore, as well as the not-so successful countries like Brazil, Chile, and several others, is usually the example that is given to explain the comparison of this model with the real world. It is argued (Balassa 1989) that the import-substitution policies in many less-developed countries are based against the primary agricultural sector which is the exporting sector while the export-oriented polices provide similar incentives to the two sectors. Countries that adopt inward-looking strategies, the limitation of the domestic markets and the lack of competition leads to the allocative and technological inefficiency. As in contrast with the onward-looking countries which are able to mobilize domestic resources effectively in the production if goods that are in competition in the wide markets worldwide which would result in technology. It is now in our own opinion that majority of the less-developed countries have approached what is said to be the take-off stage as described by Lewis (1954) and Fei and Ranis (1961) characterized by the rapidly growing economies, transfer of labour from the traditional sector, and the persistent or continuous problems of the high urban unemployment and underemployment rates

  27. Avatar obi prosper says:

    OBI PROSPER UCHE
    REG NO: 2017/241318

    THE HARRIS-TODARO MODEL

    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 the issues concerning rural-urban migration. An assumption of the model suggest that the migration decision is based on expected income differentials between rural and urban areas rather than just wage differentials. This somply implies that rural-urban migration in the context of high urban unemployment can be economically rational if expected urban income exceeds expected rural income. A typical dualistic model in development economics contains exactly two sectors, an agricultural or traditional sector in the rural area and a modern or manufacturing sector in the urban area. The most familiar single-sector model is the growth theory of Harrod-Domar (1946), also the most representative and influential dualistic framework is that of Lewis (1954) which has the idea of surplus labor, subsistence wages, and turning points in the development of a dualistic economy. The work of Lewis (1954) wasa later rigorously and diagrammatically reformed by Ranis and Fei (1961). Their work (Ranis and Fei) showed how agricultural surplus could lead to the growth of industries. According to Jorgenson (1961), the production relations of a dual economy is characterized by an asymmetry.

    If the formal sector and the rural sector are assumed to be fully flexible, then wages must be equalized at equilibrium in order to make all workers indifferent to migration.

    Basic Assumptions

    ➢ Migration is a primarily economic decision.
    ➢ There is no unemployment in the rural sector and it is perfectly competitive such that wage is equal to marginal product
    ➢ Members of the labor force rationally compare the expected value of potential wages to current wages to make the decision to migrate or not.
    Let’s represent the two sector capital version of the Harris–Todaro (1970) model which is also known as the Corden and Findlay (1975) model. A small open economy with two sectors, rural (sector X) and urban(sector Y), is considered. Sector X produces an agricultural commodity using labour and capital while sector Y produces a manufacturing good using the same two inputs. Capital is perfectly mobile between the two sectors and its economy-wide return is r. On the contrary, labour is imperfectly mobile between the sectors. Workers in the urban sector are unionised and receive a higher wage, WY, than their counterparts in the rural sector who receive a low competitive wage, WX. So WY > WX and this intersectoral wage differential leads to rural–urban migration of labour. Markets are perfectly competitive except in the urban labour market. It is assumed that neoclassical production functions exhibit constant returns to scale with positive but diminishing marginal productivity to each factor.

    Application of Harris-Todaro model to the Nigerian Economy

    Throughout the developing world, countries are experiencing rapid rates of urbanization. In Africa using Nigeria as a case study, urban growth rates are among the highest in the world averaging about 7 percent annually, with several cities having growth rate in excess of 10 percent. Association with this urbanization has been a large increase in the open urban unemployment which generally exceeds 10 percent of the urban labor force and consists largely of young school leavers.

    Although rapid urbanization and it’s associated unemployment is due partly to high population growth rates, rural-urban migration accounts for over half the growth of most African cities. At the same time, out-migration of labor from agriculture has been one factor leading to national food do and rising food prices in many African countries.

    For these reasons, there is a widespread concern that the rate of rural-urban migration should be slowed. From Nigeria’s economic view point, the mass of unemployed coupled with at least seasonal labor deficits in rural areas represents under- utilization of resources and contributes to inequitable distribution of income.

    Therefore, migration from rural areas to urban areas will increase if:

    Urban wages increase in the urban sector, increasing the expected urban income.

    Agricultural productivity decreases, lowering marginal productivity and wages in the agricultural sector, decreasing the expected rural income.

    However, even though this migration creates unemployment and induces informal sector growth, this behavior is economically rational and utility-maximizing in the context of the Harris–Todaro model. As long as the migrating economic agents have complete and accurate information concerning rural and urban wage rates and probabilities of obtaining employment, they will make an expected income-maximizing decision.

    LEWIS-FEI-RANIS MODEL

    Current literature on growth and development continues to be influenced by the one sector Solow-type models or the two-sector Uzawa-type models, both of which have now been complemented by endogenous growth. While these endogenous growth models have recently begun to confront such issues as poverty traps at a theoretical level, they generally share the neoclassical feature of full employment and market clearing. In contrast, the surplus labor models advanced by Lewis (1954), and expanded upon by Ranis and Fei (1961, 1964, 1997), described a two-sector economy depicting an initially large traditional sector and a relatively small commercialized sector, with the key feature that the traditional sector does not adhere to the neoclassical full employment labor market clearing assumption. While various micro foundations can be constructed to detail why this might be so, at the macro level, which was the focus of these early dual economy models, it was sufficient to posit that labor was in excess supply relative to cooperating factors at the prevailing wage and technology, and thus that the commercialized sector faced an essentially infinitely elastic labor supply at any moment in time.With unskilled rural labor the abundant resource in many developing countries, especially at an early stage of their development, what determines the price of labor has continued to be a controversial issue, although it is clear that, in recent years, the neoclassical model and market clearing approaches have enjoyed increasing popularity in not only the theoretical but also the applied literature. The notion of an institutional or bargaining wage not based on marginal productivity fundamentals has been especially repugnant to orthodox economists. The rejection of the labor surplus model has, in part, been due to some confusion as to which of its assumptions are necessary as opposed to which are sufficient.

    Assumptions of the lewis-fei-ranis model

    1. There is a presence of dual economy. Traditional or agriculture sector is passive and stagnant in nature while the capitalist sector is active and progressive in nature.2. Supply of land is fixed, and both A sector and K sector makes use of the land. 3. Population is an exogenous factor i.e. it is determined by factors other than those present in the model. 4. Real wage rate in the industrial sector is fixed. This wage rate is equal to initial level productivity and is also called constant institutional wage rate.

    5. There are constant returns to scale with respect to labour where labour acts as a variable factor in both A Sr and K Sr. 6. There is no accumulation of K in the A Sr. except in one form, i.e., land reclamation. It means that if there is no technological breakthrough in agriculture, the sector will become non-remunerative and it will be characterized by fatigue. Therefore, land’s fertility has to be maintained. 7. Output of the A Sr. depends upon land and labour, while that of the K Sr. depends upon labour and capital.8. Marginal product of labour is zero at some points and such labour force can be transferred from A Sr to K Sr, where the productive capacity is more without any loss to A Sr.

    Application of the lewis-fei-ranis model to the Nigerian economy

    The per capita income (in local currency unit – naira) rose at decreasing rate from 1981 to 1998, rising at increasing rate from 1999 till 2014. However, the agricultural contribution to productivity was rising and falling but fell in most of the years from 1981 to 2014. This suggests that agricultural productivity might not be responsible for the increase in income per head in Nigeria during the period

  28. Avatar Targema Josiah Terzarmo says:

    NAME: TARGEMA JOSIAH TERZARMO
    REG NO: 2017/249457
    DEPARTMENT: ECONOMICS

    THE LEWIS FEI RANIS MODEL (SURPLUS LABOUR THEORY)

    The Fei–Ranis model of economic growth is a dualism model in developmental economics or welfare economics that has been developed by John C. H. Fei and Gustav Ranis and can be understood as an extension of the Lewis model. It is also known as the Surplus Labor model. It’s recognizes the presence of a dual economy comprising both the modern and the primitive sector and takes the economic situation of unemployment and underemployment of resources into account, unlike many other growth models that consider underdeveloped countries to be homogenous in nature. According to this theory, the primitive sector consists of the existing agricultural sector in the economy, and the modern sector is the rapidly emerging but small industrial sector. Both the sectors co-exist in the economy, wherein lies the crux of the development problem. Development can be brought about only by a complete shift in the focal point of progress from the agricultural to the industrial economy, such that there is augmentation of industrial output. This is done by transfer of labor from the agricultural sector to the industrial one, showing that underdeveloped countries do not suffer from constraints of labor supply. At the same time, growth in the agricultural sector must not be negligible and its output should be sufficient to support the whole economy with food and raw materials. Like in the Harrod–Domar model, saving and investment become the driving forces when it comes to economic development of underdeveloped countries.
    In 1954. In his model Lewis divides the economy in an underdeveloped country in two sectors namely the Subsistence sector and the capitalist sector. Subsistence is identified with the agricultural sector of the economy while the capitalist sector implies mainly the manufacturing sector of the economy. Capitalist sector also includes plantations and mining where hired labour is employed for purposes of production. The capitalist sector can either be private or public in nature. Subsistence sector, that the agricultural sector is considered to be labour intensive. It does not use reproducible capital. It uses poor techniques of production and 8 very low productivity.
    Assumptions of the Lewis Model:
    (A) Surplus Labour in the Subsistence Sectors:

    The basic assumption of the model is that there exists surplus labour in the subsistence sectors. It includes labour whose marginal productivity is zero as well as that whose marginal productivity is positive but is less than the institutional wage. This labour comprises farmers, agricultural labourers, petty traders domestic servants and women.

    The surplus labour in the agriculture sector acts as a source of unlimited supply of labour for the manufacturing sector. By unlimited supply of labour. Lewis means that the supply of labour is perfectly elastic at a particular wages. This particular wage is somewhat higher than the institutional wage which each worker in the agricultural sector gets. Lewis calls it as institutional wage because every worker gets this wage because of some institutional arrangements. This wages is equal to an average share of each worker in the total output in the subsistence sector. If market forces were allowed to operate in the subsistence sector labourers with zero margin productivity or those with a very low marginal productivity would not have received this wage.

    (B) Importance of Saving:

    Another important assumption that Lewis makes is about the savings generated in the capitalist sector and in the subsistence sector. The capitalist sector invests all its savings for its further expansion.

    Those in the subsistence sector, on the other hand squander away their savings, if any in purchase of jewellery & for construction of temples etc. The propensity to save of the people in subsistence sector is also lower when compared with that of those in the capitalist sector. Fei and Ranis emphasized strongly on the industry-agriculture interdependency and said that a robust connectivity between the two would encourage and speedup development. If agricultural laborers look for industrial employment, and industrialists employ more workers by use of larger capital good stock and labor-intensive technology, this connectivity can work between the industrial and agricultural sector. Also, if the surplus owner invests in that section of industrial sector that is close to soil and is in known surroundings, he will most probably choose that productivity out of which future savings can be channelized. They took the example of Japan’s dualistic economy in the 19th century and said that connectivity between the two sectors of Japan was heightened due to the presence of a decentralized rural industry which was often linked to urban production. According to them, economic progress is achieved in dualistic economies of underdeveloped countries through the work of a small number of entrepreneurs who have access to land and decision-making powers and use industrial capital and consumer goods for agricultural practices.

    HARRIS TODARO MODEL OF MIGRATION
    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. 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 is 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 drive of rural-urban migration, while urban unemployment is local governments’ main concern in many cities. In the Harris–Todaro model, the rising urban wage pushes up the expected wage in the urban sector and consequently encourages workers to migrate from the rural sector to the urban sector. … This phenomenon is referred to as Todaro paradox. Harris and Todaro subsequently formulated amodelto explain rural-urban economic preferences to migrate. The distinctive concept in the model is that the rate of migration flow from rural (agricultural) areas to urban (industrial) areas is determined by the difference between expected urban wages and rural wages.The hypothesis and predictions of Harris-Todaro model have been subjected to econometric evaluation and have been corroborated by several studies. The key hypothesis of Harris-Todaro are that migrants react mainly to economic incentives, earnings differentials, and the probability of getting a job at the destination have influence on the migraton decision. In other words, these authors posit that rural-urban migration will occur while the urban expected wage exceed the rural wage. From this crucial assumption, as denominated by Harris-Todaro, is deduced that the migratory dynamics leads the economic system toward an equilibrium with urban concentration and high urban unemployment.

    In our previous works we analyzed the rural-urban migration by means of an agent-based computational model taking into account the influence of the neighborhood in the migration decision. The inclusion of the influence of neighbors was done via an Ising like model. The economic analogous to the external field in the Ising hamiltonian was the differential of expected wages between urban and rural sectors.
    ASSUMPTIONS OF HARRIS-TODARO MODEL OF MIGRATION MAY INCLUDE
    1.Two sectors: urban (manufacture) and rural (agriculture).
    2· Rural-urban migration condition: when urban real wage exceeds real agricultural product.
    3· No migration cost
    4· Perfect competition
    5· Cobb-Douglas production function
    6· Static approach
    7· Low risk aversion
    VARIABLES AND PARAMETERS
    Exogenous variables
    LM- total labor force (workers)
    WM– minimum wage rate in manufacturing (dollars)
    Endogenous variables
    LM – urban labor in manufacturing (workers)
    LU – unemployed labor force (workers)
    LA – rural labor force in agriculture (workers)
    WA – wage rate in agriculture (dollars)
    EWM– expected wage rate in manufacturing (dollars).

  29. Avatar Uwaezuoke Stephen Chinonso (2017/242432) says:

    Uwaezuoke Stephen Chinonso
    2017/242432
    Economic Department
    The Fei–Ranis model of economic growth is a dualism model in developmental economicsor welfare economics that has been developed by John C. H. Fei and Gustav Ranis and can be understood as an extension of the Lewis model. It is also known as the Surplus Labor model. It recognizes the presence of a dual economy comprising both the modern and the primitive sector and takes the economic situation of unemployment and underemployment of resources into account, unlike many other growth models that consider underdeveloped countries to be homogenous in nature.
    According to this theory, the primitive sector consists of the existing agricultural sector in the economy, and the modern sector is the rapidly emerging but small industrial sector. Both the sectors co-exist in the economy, wherein lies the crux of the development problem. Development can be brought about only by a complete shift in the focal point of progress from the agricultural to the industrial economy, such that there is augmentation of industrial output. This is done by transfer of labor from the agricultural sector to the industrial one, showing that underdeveloped countries do not suffer from constraints of labor supply. At the same time, growth in the agricultural sector must not be negligible and its output should be sufficient to support the whole economy with food and raw materials. Like in the Harrod–Domar model, saving and investment become the driving forces when it comes to economic development of underdeveloped countries.

    The three fundamental ideas used in this model are:
    1. Agricultural growth and industrial growth are both equally important;
    2. Agricultural growth and industrial growth are balanced;
    3. Only if the rate at which labor is shifted from the agricultural to the industrial sector is greater than the rate of growth of population will the economy be able to lift itself up from the Malthusian population trap.
    Fei and Ranis emphasized strongly on the industry-agriculture interdependency and said that a robust connectivity between the two would encourage and speedup development. If agricultural laborers look for industrial employment, and industrialists employ more workers by use of larger capital good stock and labor-intensive technology, this connectivity can work between the industrial and agricultural sector. Also, if the surplus owner invests in that section of industrial sector that is close to soil and is in known surroundings, he will most probably choose that productivity out of which future savings can be channelized. They took the example of Japan’s dualistic economy in the 19th century and said that connectivity between the two sectors of Japan was heightened due to the presence of a decentralized rural industry which was often linked to urban production. According to them, economic progress is achieved in dualistic economies of underdeveloped countries through the work of a small number of entrepreneurs who have access to land and decision-making powers and use industrial capital and consumer goods for agricultural practices.
    The Lewis model is criticised on the grounds that it neglects agriculture. Fei–Ranis model goes a step beyond and states that agriculture has a very major role to play in the expansion of the industrial sector. In fact, it says that the rate of growth of the industrial sector depends on the amount of total agricultural surplus and on the amount of profits that are earned in the industrial sector. So, larger the amount of surplus and the amount of surplus put into productive investment and larger the amount of industrial profits earned, the larger will be the rate of growth of the industrial economy. As the model focuses on the shifting of the focal point of progress from the agricultural to the industrial sector, Fei and Ranis believe that the ideal shifting takes place when the investment funds from surplus and industrial profits are sufficiently large so as to purchase industrial capital goods like plants and machinery.
    It has been asserted that Fei and Ranis did not have a clear understanding of the sluggish economic situation prevailing in the developing countries. If they had thoroughly scrutinized the existing nature and causes of it, they would have found that the existing agricultural backwardness was due to the institutional structure, primarily the system of feudalism that prevailed. While mentioning the important role of high agricultural productivity and the creation of surplus for economic development, they have failed to mention the need for capital as well. Although it is important to create surplus, it is equally important to maintain it through technical progress, which is possible through capital accumulation, but the Fei-Ranis model considers only labor and output as factors of production, also the reluctant expansionary growth in the industrial sector of underdeveloped countries can be attributed to the lagging growth in the productivity of subsistence agriculture. This suggests that increase in surplus becomes more important a determinant as compared to re-investment of surplus, an idea that was utilized by Jorgenson in his 1961 model that centered around the necessity of surplus generation and surplus persistence, finally Stagnation has not been taken into consideration, and no distinction is made between labor through family and labor through wages. There is also no explanation of the process of self-sustained growth, or of the investment function. There is complete negligence of terms of trade between agriculture and industry, foreign exchange, money and price.

    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.
    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 is 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 drive of rural-urban migration, while urban unemployment is local governments’ main concern in many cities.
    The formal statement of the equilibrium condition of the Harris–Todaro model is as follows:
    • Let wr be the wage rate (marginal productivity of labor) in the rural agricultural sector.
    • Let le be the total number of jobs available in the urban sector, which should be equal to the number of employed urban workers.
    • Let lus be the total number of job seekers, employed and unemployed, in the urban sector.
    • Let wu be the wage rate in the urban sector, which could possibly be set by government with a minimum wage law.
    Rural to urban migration will take place if:
    Wr Le/Lus(Wu)
    At equilibrium
    Wr = Le/Lus(Wu).
    With the random matching of workers to available jobs, the ratio of available jobs to total job seekers gives the probability that any person moving from the agricultural sector to the urban sector will be able to find a job. As a result, in equilibrium, the agricultural wage rate is equal to the expected urban wage rate, which is the urban wage multiplied by the employment rate.
    Therefore, migration from rural areas to urban areas will increase if:
    • Urban wages (wu) increase in the urban sector (le), increasing the expected urban income.
    • Agricultural productivity decreases, lowering marginal productivity and wages in the agricultural sector (wr), decreasing the expected rural income.
    However, even though this migration creates unemployment and induces informal sector growth, this behavior is economically rational and utility-maximizing in the context of the Harris–Todaro model. As long as the migrating economic agents have complete and accurate information concerning rural and urban wage rates and probabilities of obtaining employment, they will make an expected income-maximizing decision.

  30. Avatar Idoko Ukamaka Blessing says:

    Name:Idoko Ukamaka Blessing
    Reg No: 2017/249510
    Dept:Economics
    Email Address:idokoukamaka0701@gmail.com

    Harris_Todaro Migration Model

    The Harris–Todaro model , named after John R. Harris and Michael Todaro , is an economic model developed in 1970 and used in development economics to explain some of the issues concerning rural- urban migration. Todaro migration model is a theory that explains rural-urban migration as an economically rational process despite high urban unemployment. Migrants calculate(present value of) urban expected income (or its equivalent) and move if this exceedsaverage rural income.
    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. 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 is 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 drive of rural-urban migration, while urban unemployment is local governments’ main concern in many cities.
    Therefore, migration from rural areas to urban areas will increase if: Urban wages increase in the urban sector, increasing the expected urban income. Agricultural productivity decreases, lowering marginal productivity and wages in the agricultural sector, decreasing the expected rural income. However, even though this migration creates unemployment and induces informal sector growth, this behavior is economically rational and utility-maximizing in the context of the Harris–Todaro model. As long as the migrating economic agents have complete and accurate information concerning rural and urban wage rates and probabilities of obtaining employment, they will make an expected income-maximizing decision.
    For a developing country like Nigeria, the Harris_ TODARO migration model goes a long way in explaining the cause of constant influx of labor in urban centers from the rural areas. Due to the high wage expectations in urban areas, labor migrate from in search of greener pastures in the cities. This it is imperative to ensure local growth and development of the rural economy, and this can be achieved by;
    1: Creating an appropriate rura_urban economic balance to ameliorate both urban and rural unemployment and slow the pace of rural_urban migration.
    2: Expansion of small scale labor intensive industries to reduce dependance on foreign machines.
    3: Choosing appropriate labor intensive method of production.
    4: Modify the linkage between education and employment. All the educated should be employed
    SOURCE:
    Wikipedia
    Todaro.

    LEWIS_FEI_RANIS MODEL (SURPLUS LABOR THEORY)

    The Lewis_Fei_Ranis model or surplus labor Theory also known as the Lewis two_sector model is a theory of development in which surplus labor from the traditional agricultural sector is transformed to the modern industrial sector, the growth of which absorb the surplus labor, promote industrialization, and stimulate sustained development.
    The Lewis_fei_Ranis model is one of the best known early theoretical model of development that focused on structural transformation of a primary subsistence economy . The model was formulated by Nobel Laureate W. Arthur Lewis in the midst 1950s and was later modified, formalised and extended by John Fei and Gustav Ranis. The model became the general theory of development process in surplus_labor developing nations during the early 1970s and it is sometimes still applied to study the recent growth experience in China and labor market in other developing countries.

    Basic Assumptions
    In the Lewis model, the underdeveloped economy consist of two sectors: a traditional, overpopulated rural subsistence sector characterised by zero marginal labor productivity (surplus labor) and a high_productivity modern Urban industrial sector into which labor from the subsistence sector is gradually transformed. The primary focus of the model is on both the process of labor transfer and the growth of output and employment in the modern sector. Both labor transfer and modern sector employment growth are brought about by output expansion in that sector. The speed with which this expansion occurs is determined by the rate of industrial investment and capital accumulation in the modern sector. Such investment is made possible by the excess of modern sector profit over wages on the assumption that capitalist reinvest all their profits. Lastly, Lewis assumed that the levels of wages in the urban industrial sector was constant, determined as a given premium over a fixed average subsistence level of wages in the traditional agricultural sector. At the constant urban wage, the supply curve of rural labor to the modern sector is considered to be perfectly elastic.

    Criticism of The Lewis_Fei_Ranis Model
    Although the Lewis two_sector model is simple and roughly reflect the historical experience of economic growth in the West, four of it’s key assumptions do not fit the institutional and economic realities of developing countries.
    First the model implicitly assumed that the rate of labor transfer and employment creation in the modern sector is proportional to the rate of modern sector capital accumulation. The faster the rate of capital accumulation, the higher the growth rate of modern sector and the faster the faster the rate of new job creation. But what if capitalist profit are reinvested in more sophisticated laborsaving capital equipment rather than just duplicating the existing capital as it is implicitly assumed in the Lewis model? (accepting the debatable assumption that capitalist profit are not sent abroad as a form of “capital flight” to be added to the deposit of Western Bank.
    The second criticism of the model assumption is the notion that surplus labor exist in rural areas while there is full employment in the urban areas. Most contemporary
    research indicate that there is little surplus labor in the rural locations. True there are both seasonal and geographic exception to this rule (example, at least until recently in part of China and the Asian subcontinent, some Caribbean islands and isolated regions of Latin America where land ownership is very unequal), but by and large, development economists today agree that Lewis’s assumption of rural surplus labor is not generally valid.
    The third doubtful assumption is the notion of a competitive modern_sector labor market that guarantees the continued existence of constant real urban wages up to the point where supply of rural surplus labor is exhausted. Prior to the 1980s, a striking feature of urban labor markets and wage determination in almost all developing countries was the tendency for these wages to rise substantially over time, both in absolute terms and relative to average rural incomes, even in the presence of rising levels of open modern sector unemployment and low or zero marginal productivity in agriculture. Institutional factors such as union bargaining power, civil service wage scales, and multinational corporations’ hiring practice tends to negate competitive forces in modern sector labor markets in developing countries.
    The last concern with this model is it’s assumption of deminishing returns in the modern industrial sector. Yet there is much evidence that increasing returns prevail in that sector, posing special problems for development policy making.
    We study the Lewis model because as many development specialist still think about development in this way either explicitly or implicitly, it helpsstudents participate in the debates. Moreover, the model is widely considered relevant to recent experiences in China, where labor has been steadilyabsorbed from farming to manufacturing and a few other countries withsimilar growth patterns. The Lewis turning point at which wages in manufacturing start to rise was widely identified with China’s wage increases of2010.However, when we take into account the laborsaving bias of most moderntechnological transfer, the existence of substantial capital flight, the widespread nonexistence of rural surplus labor, the growing prevalence of urbansurplus labor, and the tendency for modern-sector wages to rise rapidly even where substantial open unemployment exists, we must acknowledge that theLewis two-sector model—though valuable as an early conceptual portrayal ofthe development process of sectoral interaction and structural change and adescription of some historical experiences including some recent ones such asChina—requires considerable modification in assumptions and analysis to fitthe reality of most contemporary developing nations.
    Since the model does not suit developing countries, it is definitely not suitable for Nigeria (which is also a developing country)
    SOURCE: TODARO

  31. Avatar Ike Godswill Chinedu says:

    Name: Ike Godswill Chinedu
    Reg no: 2017/249515
    Dept: Economics
    Answer;
    The Lewis Fei-Ranis Model of (Surplus
    Labour Theory).
    The Fei-Ranis model of economic growth was developed by John C. H. Fei and Gustar Ranis, and can also be regarded as the surplus labour model. It has also been understood to be a dualism model in development economics. It is an extension of the Lewis model. The model takes into consideration the presence of a dual economy, which comprises of the modern and primitive sectors and takes into account an economic situation of unemployment and underemployment. According to this theory, the primitive sector comprises of existing agricultural sector and considers the modern sector as rapidly growing but small industrial sector. The both sector exist together in the economy, such that there is augmentation of the industrial output. This was done through the transfer of labour supplied. And at the same stance, growth in agricultural sector must not be ignored or neglected and its output must be sufficient enough to support the whole economy with food and raw materials.
    The assumptions of the model was rooted on the falls of the Lewis model in which; one, he underestimated the role of agriculture in boosting the growth of the industrial sector. It also did not acknowledge the fact that an increase in productivity of labour should take place as regards to the shift in labour between the two sectors. These two ideas were taken into considerations in the Fei-Ranis dual economy model of three growth stages. They further propose that the model lacks in their application of concentrated analysis to the changes that takes place with agricultural development. In phase one of the Fei-Ranis model, the elasticity of the agricultural labour force is infinite and thus suffers from a disguised unemployment. The marginal product of labour (MPL) is zero. This phase is therefore similar to the Lewis model. In the phase two of the model, there is a rise in agricultural productivity which leads to industrial growth such that it prepares the base for the next stage. In this stage there may be agricultural surplus, as average product (AP) increases, higher than marginal product and not also equal to the subsistence level of wages. Note that in phase one; MPL = 0 and thus, an actual amount of labour can be shifted from the agricultural sector without any fall in output. This therefore shows the surplus labour. While in the phase two, AP>MP and industrial labour rises to a value greater than zero and APL begins to fall. This fall in the APL is due to the agricultural labourers shift to the industrial sector, the real wage of the industrial labourers’ decreases due to shortage of food supply, since less labourers are now working in the food sector. The real wage decreases the level of profit and the size of surplus that could have been reinvested for more industrialization. Phase three, is the point of commercialization. This is where the economy becomes completely commercialized in the absence of disguised unemployment. Here the supply curve becomes steeper and both sectors starts equally for labour. In this phase, the amount of labour shifted and the time it takes, depends on; the growth surplus generated within the agricultural sector, and the growth of the industrial capital stock dependent on the growth of industrial profit and; the nature of the industry’s technical progress and its associated bias and; finally the growth rate of population.
    The assumptions or fundamental ideas behind the model thus becomes;
    Agricultural growth and industrial growth are both important
    Agricultural growth and industrial growth are necessarily balanced
    Only if the rate at which labour is shifted from the agricultural to the industrial sector is greater than the rate of growth of population will the economy be able to lift itself from the Malthusian population trap. This shifting can take place through the landlord’s investment activities and through the government fiscal measures. Moreover, the cost of shifting of labour in terms of both private and social cost may be higher. Also the per capita agricultural consumption can increase, rather there could exist a wide gap between the wages of urban and rural workers. These three scenarios could be referred to as leakages, which prevent the creation of agricultural surplus.
    Fei and Ranis laid a strong emphasis on the industry-agriculture relationship and suggested that a healthy relationship between the two would enhance development. They made reference to the japan dualistic economy in the 19th century and argued that connectivity between the two sectors of Japan was promoted by the decentralized rural industry which was linked to urban production. They further posit that economic progress is achieved in dualistic economies of underdeveloped countries through the work of a small number of entrepreneurs who have access to land and decision making powers and use industrial capital and consumer goods for agricultural practises. They developed a concept they labour utilization ratio R, which they defined as the unit of labour that can be productively employed (without redundancy) per unit of land.
    Thus labour utilization is calculated as; R=ts/ot.
    They also developed the concept of endowment ratio S, which is a measure of the relative availability of the two factors of production. It is given by; S=te/ot.
    Where te is agricultural labour and; ot represents agricultural land. They finally developed the concept of non-redundancy coefficient T, being measured as; T= ts/te
    These concepts together forms a relationship between T, R and S. therefore T can then be said to be calculated as; T=ts or ot/te or ot= R/S thus, T = R/S.
    The mathematical relation shows that non-redundancy coefficient T, is directly related to labour utilization and inversely related to the endowment ratio. The Fei and Ranis model assumes constant returns to scale in the industrial sector like in the agricultural sector. They assumed the main factors of production to be capital and labour, the expansion path of the industrial sector thus given by a line OA0 A1, A2. As capital increases from K0 to K1 to K2 and labour increases from L0 to L1 to L2, the industrial output thus increases accordingly. According to the model, the main source of labour supply of the industrial sector is the agricultural sector, due to the redundancy in the agricultural labour force. Total industrial activity rises due to increase in the total supply of investment funds, leading increased industrial employment.
    Agricultural surplus is seen as the produce from agriculture which surpasses the needs of the society for which it was produced, and may either be exported for income or stored for future use. Fei and Ranis in their model hypothesized that if this agricultural surplus is equivalent to the real wage, it is therefore known as the constant institutional wage hypothesis. It is also equal in value to the ratio of total agricultural output to the total agricultural population. If a section of the redundant agricultural labour force is removed from the total agricultural labour force and absorbed into the industrial sector, now the difference in the output produced by the remaining labour force and the real income of the labour force produces the total agricultural surplus of the economy. This surplus is produced by the reallocation of labour such that it is absorbed by the industrial sector. Thus, it could be seen as the use of hidden rural savings for the expansion of the industrial sector. We can therefore say that, the agricultural sector plays a crucial role of a wage fund. The unproductive labour force from the agricultural sector turns productive once it absorbed by the industrial sector simultaneously and produces an output, earning a total wage income. The agricultural surplus created is needed for consumption by the same workers who left for the industrial sector. The agricultural sector thus provides successfully not only the manpower for the production activities but also the wage funds required to run the process.
    Importance of Agriculture in the Fei-Ranis
    modell of Surplus Labour.
    The model goes beyond, stating that agriculture plays a vital role in the development of the industrial sector unlike the Lewis model. They argued that the rate of growth of the industrial sector depends on the amount of total agricultural surplus and on the amount of profit that are earned in the industrial sector. The model focuses on the shifting of the focal point of the progress from the agricultural to the industrial sector. Fei and Ranis believed that this shifting takes place when investment fund from surplus and industrial profit are sufficiently large so as to purchase industrial capital goods like plants and machinery. Thus, the condition for a successful transformation by Fei and Ranis is that; the rate of increase of capital stock and rate of employment opportunities > Rate of population growth.
    The Necessity of Labour Reallocation.
    The essence of labour reallocation lies in the Engel’s law which posits that the part of income being spent on food decreases with an increase in the income level of an individual, even if there’s a rise in the actual expenditure on food. As underdeveloped country passes through development processes, labour is reallocated from the agricultural to the industrial sector. This labour reallocation becomes a necessity over time as consumers begin to want more of industrial good than agricultural good on relative terms. Although the Fei-Ranis model noted the importance of labour reallocation being linked to the need to need to produce more capital goods as opposed to the thought of industrial consumer goods following the theory of the Engel’s law. This is due to the fact that the assumption that the demand for industrial good is high seems to be unrealistic, as the real wage in the agricultural sector is very low and this prevents the demand for industrial goods. As the growth process observes a slow-increase in the consumer purchasing power, the dualistic economies follow the path of natural austerity, being characterised by more demand and thus, importance of capital goods industries when juxtaposed to the industrial goods industries.
    In the Fei-Ranis model, it’s quite possible that technological progress takes place and there’s a shift to labour-saving production techniques, growth of the economy takes place with increases in profit but no economic development takes place. Since growth takes place with increases in profits but development is at a standstill and since employment and wages of labourers remain the same.
    Weaknesses of the Fei and Ranis model.
    The Fei and Ranis model failed to take into account the sluggish economic situation prevailing in the developing countries. If not, they would have noticed the backwardness existing in the agricultural sector was due to the institutional structure, primarily the system of feudalism that prevailed.
    They assumed that MPPL is zero (I.e. MPPL = 0) during, the early phases of economic development, this has been criticized by Harry T. Oshima and some other economists that MPPL of labour is zero only if the agricultural population is very large and if it is very large, some of that labour will be shift to cities in search of jobs.
    In the Fei-Ranis the question of whether MPL = 0 is that of an empirical one. The underdeveloped countries mostly exhibit seasonality in food production, which suggests that especially during favourable climatic conditions, for instance, that of harvesting or sowing, MPL would definitely be greater than zero (i.e. MPL > 0).
    Application of the model in the real world.
    The Lewis Fei-Ranis model of dualistic economic development was employed in china as a framework to investigate the rapid growth in china in 1965-2002. It discovered that the economic growth of china can be mainly attributed to the development of the non-agricultural sector which was the industrial and service sector, being driven rapid labour migration and capital accumulation.
    Conclusion.
    We can therefore conclude that since the Lewis Fei-Ranis model was not successful when applied to the study of the success of the rapid growth in China, thus is not applicable in the real world

    Harris-Todaro Model of Migration.
    The Harris-Todaro model, was named after John R. Harris and Michael Todaro. The model was developed in 1970. It was used in development and welfare economics to explain issues relating to rural-urrban migration. The primary assumption of this model is that, the decision to migrate is based the expected income differentials between rural and urban areas other than just wage differentials alone. This in essence means that rural-urban migration in acontext of high urban unemployment can be economically rational if expected urban income exceeds expected rural income.
    In the model, equilibrium could be reached if the expected wage or actual wage adjusted for unemployment rate in urban areas is equal to the marginal product of an agricultural worker. It assumes that there’s no unemployment in the rural agricultural sector.it further assumes that rural agricultural production and subsequent labour market is perfectly competitive. Therefore, the agricultural rural wage is equal to agricultural marginal productivity. To be in equilibrium, the rural-urban migration rate will have to be equal to zero, since the expected rural income equals the expected urban income. Thus, in this equilibrium there will be a positive unemployment in the urban sector.
    The equilibrium conditions is thus stated as follows;
    Let Wr be the wage rate (i.e. marginal productivity of labour) in the rural agricultural sector.
    Let Le be the total number of jobs available in the urban sector, which should be equal to the number of employed workers.
    Let Lus be the total number of job seekers, both employed and unemployed, in the urban sector.
    Let Wn be the wage rate in the urban sector which could possibly be set by government with a minimum wage law.
    Therefore, rural to urban migration will take place if:
    Wr Le/Lus Wu
    And at equilibrium if:
    Wr = Le/Lus Wu
    Matching workers randomly to the available jobs, the ratio of the available jobs to the overall job seekers thus gives the probability that any person moving from the agricultural sector to the urban sector will be able to find a job therefore in equilibrium, the agricultural wage is equal to the expected urban wage rate, which can be calculated as the urban wage multiplied by the employment rate.
    In conclusions, migration from rural to urban areas will only increase if:
    Urban wages increase the urban sectors, leading to an increase in the expected urban income.
    Agricultural productivity decreases, lowering marginal productivity and wages in the agricultural sector, leading to a decrease in the expected rural income.
    Therefore, though this migration might create unemployment, causing growth in the informal sector, this behaviour is economically rational and maximizes utility in the Harris-Todaro model. Therefore, for the fact that the economic agents migrating are well informed or have complete information about rural and urban wage rates and probabilities of being employed, they will make an expected income maximizing decision
    Application to the Real World via Nigeria.
    The model was successful in explaining the internal migration within China as the regional income gap has been proved to be a primary drive to rural-urban drift. While urban unemployment is local government main concern in many cities. Therefore it is not applicable to Nigeria
    .

  32. Avatar Nweke Ngozi Veronica 2017/242946 says:

    LEWIS FEI RANIS MODEL (SURPLUS LABOUR THEORY)

    Lewis proposed a seminal theory of economic development for under developed and overpopulated countries with surplus agricultural labour. In Lewis theory, he assumed a two sector economy comprising of Agricultural sector and the industrial sector (non- agricultural sector). The agricultural sector is assumed to contain unlimited supply of labour that results in an extremely low, close to zero marginal productivity of labour. The real wage in the agricultural sector is said to be constant and equal to average productivity of labour. The theory assumed economic growth is achieved in such economy through capital accumulation in the industrial sector. The industrial sector has an abundance of capital and resources relative to labour. The industrial sector accumulates capital by drawing surplus labour out of the agricultural sector. In Lewis theory, he defined two stages of economic development which includes the first labour stage and the second labour scarce stage of development.
    The Gustav Ranis and John Fei model is an extension of the Lewis model. They disassembled Lewis two stage of economic growth into three phases, defined by the marginal productivity of agricultural labour. They assume the economy to stagnant in its pre-conditioning stage. The breakout point marks the creation of an infant non-agricultural sector and the entry into phase one. Agricultural labour starts to be reallocated to the non-agricultural sector. Due to the abundance of surplus agricultural labour, its marginal productivity is extremely low and the average labour productivity defines the agricultural institutional wage. When the redundant agricultural labour force has been reallocated, the agricultural marginal productivity of labour starts to rise but is still lower than the institutional wage. This marks the shortage point at which the economy enters phase two of development. During phase two the remaining agricultural unemployment is gradually absorbed. At the end of this process the economy reaches the commercialization point and enters the phase three where the agricultural labour market is fully commercialized.

    ASSUMPTIONS OF THE MODEL
    1. The model assumes that a developing economy has a surplus of unproductive labor in the agricultural sector.
    2. These workers are attracted to the growing manufacturing sector where higher wages are offered.
    3. It also assumes that the wages in the manufacturing sector are more or less fixed.
    4. Entrepreneurs in the manufacturing sector make profit because they charge a price above the fixed wage rate.

    5. The model assumes that these profits will be reinvested in the business in the form of fixed capital. An advanced manufacturing sector means an economy has moved from a traditional to an industrialized one.
    7. Full employment in the economy
    8. Closed economy. No foreign trade in agricultural goods.

    Harris Todaro Model
    The model is used in development economics to explain rural-urban migration. The model was propounded by John Harris and Michael Todaro in the 1970s. Harris and Todaro are of the view that labour or people in the rural areas migrate to the urban areas based on expected wage rate in those urban areas. That is to say, that individuals move to cities not based on the actual wage rate prevailing there but based on the wage they expect to earn in the future. The model assumes existence of surplus labor in the rural area which constitutes agricultural labor. The model assumes that there is full market information, this is impractical because there is prevailing illiteracy among people in the rural area. This movement to urban areas causes overcrowding and unemployment eventually in this urban areas.
    The model states that,
    Wr = (le/lt )Wu
    Where,
    Wr= wage rate in the rural area
    le = labor employed
    lt = total labor available
    Wu = wage rate in the urban area
    Rural Urban migration occurs when the wage rate in the rural area is less than that in the urban area ie Wr (le/lt)Wu ie where wage rate in the rural area is greater than the wage rate in the urban area.

  33. Avatar Ikebude Precious Chidiebere 2017/249516 says:

    HARRIS-TODARO MODEL OF MIGRATION AND UNEMPLOYMENT
    In recent years, the urban areas in less developed countries have grown very rapidly. Between 1950 and 1960, urban areas in Africa grew by 69%, in Latin America by 67%, and in Asia by 51%, while rural areas grew by only 20% over the same period. Since biological growth rates rarely exceed 3% per annum, much of the urban growth is due to rural-urban migration. There is a growing consensus on a number of aspects of the migration question. Both economist and non-economist agree that rural-urban migration can be explained primarily by economic factors: the “push” from agriculture and the “pull” of relatively high urban wages. There is such migration is quite rational despite the existence of urban unemployment. The essence of this relationship is summarized clearly in perhaps the best-known article on the subject, that of Harris and Todaro: “…migration proceeds in response to urban-rural differences in exoected earnings (defined below) with the urban employment rate acting as an equilibrating force on such migration”
    The Harris-Todaro model, named after John R. Harris and Michael Todaro is an Economic model developed in 1970 used to explain some issues concerning rural-urban migration in development economics. Todaro migration model seeks to explain rural-urban migration as an economically rational process despite high urban unemployment. Migrants calculate (present value of) urban expected income (or its equivalent) and move if this exceeds average rural income. The Todaro migration model has four(4) basic characteristics:
    1. Migration is stimulated primarily by rational economic considerations of relative benefits and costs, mostly financial but also psychological.
    2. The decision to migrate depends on expected rather than actual urban-rural real-wage differentials where the expected differential is determined by the interaction of two variables, the actual urban-rural wage differential and the probability of successfully obtaining employment in the urban sector.
    3. The probability of obtaining an urban job is directly related to the urban employment rate and thus inversely related to the urban unemployment rate.
    4. Migration rates in excess of urban job opportunity growth rates are not only possible but also rational and even likely in the face of wide urban-rural expected income differentials .High rates of urban unemployment are therefore inevitable outcomes of the serious imbalance of economic opportunities between urban and rural areas in most underdeveloped countries.
    On the other hand, Harris-Todaro model shows equilibrium version of the Todaro migration model which predicts that expected incomes will be across rural and urban sectors when taking into account informal sector activities and outright unemployment. Its main assumption is that migration decision are based on expected income differentials between rural and urban areas rather than wage differentials.
    The Harris-Todaro model produced two powerful policy results. The first concerns the policy of formal-sector job creation to employ the unemployed. Secondly, there (Harris and Todaro) considered a policy of rural development. If such a program could increase the rural traditional-sector wage, unemployment would then fall. Thus, in the Harris-Todaro model, the solution to urban unemployment is rural development.
    The Harris-Todaro model is also based on the following assumptions:

    1. There are two sectors in the economy; the rural or agricultural sector (A) and the urban or manufacturing sector (M).
    2. The rural sector produces XA units of agricultural goods and the urban sector produces XM units of manufactured goods. Each sector produces only one unit.
    3.The model operates in the short run and capital is available in fixed quantities (K ) in the two sectors
    4. The number of urban jobs available (NM ) is exogenously fixed. In the rural sector some work is always available. Therefore, the total urban labor force comprises N–NA along with an available supply of rural migrants. In other words, the total urban labor force equals N–NA with (N–NA ) – NM unemployed.
    5. The urban wage is fixed at WM and the rural wage at WA , WM > WA .
    6. The rural wage equals the rural marginal product of labour and the urban wage is exogenously determined.
    7. Rural-urban migration continues so long as the expected urban real income is more than the real agricultural income.
    8. The expected urban real income is equal to the proportion of urban labour force actually employed multiplied by the fixed minimum urban wage.

    THE HARRIS-TODARO MIGRATION MODEL

    Assume only two sectors, rural agriculture and urban manufacturing. The demand for labor (the marginal product of labor curve) in agriculture is given by the negatively sloped line AA’. Labor demand in manufacturing is given by MM’. The total labor force is given by line OA OM . In a neoclassical, flexible-wage, full-employment market economy, the equilibrium wage would be established at W*A = W*M, with OA LA workers in agriculture and OM LM workers employed in urban manufacturing. All available workers are therefore employed. But what if urban wages are institutionally determined (inflexible downward) as assumed by Todaro at a level WM , which is at a considerable distance above W*A. If for the moment we continue to assume that there is no unemployment, OMLM workers would get urban jobs, and the rest OALM , would have to settle for rural employment at OAWA** wages (below the free-market level of ). So now we have an urban-rural real wage gap of WM – WA**, with WM institutionally fixed. If rural workers were free to migrate (as they are almost everywhere except China), then despite the availability of only OMLM jobs, they are willing to take their chances in the urban job lottery. If their chance (probability) of securing one of these favored jobs is expressed by the ratio of employment in manufacturing, LM, to the total urban labor pool, LUS, then the expression
    WA = LM/LUS (WM)
    shows the probability of urban job success necessary to equate agricultural income WA with urban expected income (), thus causing a potential migrant to be indifferent between job locations. The locus of such points of indifference is given by the qq’ curve.
    POLICY IMPLICATIONS

    MR is the production possibility curve of the manufacturing (urban) and rural sectors. Given the initial minimum wage in the urban sector. The initial equilibrium at point B where OXM output is produced in the rural sector. The rural-urban migration is not possible at point B due to the expected wage differentials. Point E on the production possibility curve is the wage differential point at which OXM output is produced in the urban sector and OXA output in the rural sector.
    1. Imbalances in urban-rural employment opportunities caused by the urban bias, particularly first-city bias, of development strategies must be reduced. Because migrants are assumed to respond to differentials in expected incomes, it is vitally important that imbalances between economic opportunities in rural and urban sectors should be minimized. When urban wage rates rise faster than average rural incomes, they stimulate further rural-urban migration in spite of rising levels of urban unemployment.
    2. Urban job creation is an insufficient solution for the urban unemployment problem; This follows that for any given positive urban-rural wage differential, higher urban employment rates will widen the expected differential and induce even higher rates of rural-urban migration. For every new job created, two or three migrants who were productively occupied in rural areas may come to the city. Thus if 100 new jobs are created, there may be as many as 300 new migrants and therefore 200 more urban unemployed. Hence a policy designed to reduce urban unemployment may lead not only to higher levels of urban unemployment but also to lower levels of agricultural output due to induced migration.
    3. Indiscriminate educational expansion will lead to further migration and unemployment; The heavy influx of rural migrants into urban areas at rates much in excess of new employment opportunities necessitates rationing in the selection of new employees. Although within each educational group such selection may be largely random, many observers have noted that employers tend to use educational attainment or number of years of completed schooling as the typical rationing device. For the same wage, they will hire people with more education in preference to those with less, even though extra education may not contribute to better job performance. Jobs that could formerly be filled by those with a primary education (sweepers, messengers, clerks, etc.) now require secondary training; those formerly requiring a secondary certificate (clerks, typists, bookkeepers, etc.) must now have a university degree. It follows that for any given urban wage, if the probability of success in securing a modern-sector job is higher for people with more education, their expected income differential will also be higher, and they will be more likely to migrate to the urban (cities).
    4. Wage subsidies and traditional scarcity factor pricing can be counterproductive; A standard economic policy prescription for generating urban employment opportunities is to eliminate factor price distortions by using “correct” prices, perhaps implemented by wage subsidies (fixed government subsidies to employers for each worker employed) or directs government hiring.
    CRITICISM;
    The Harris-Todaro model suggest non-distortionary lump sum tax to finance subsidy.
    Harris-Todaro model does not take into considerations the generation of saving as a source of financing subsidy. Savings are low in LDCs.
    This model does not incorporate the cost of rural-urban migration or the relatively higher cost of urban living which the migrants have to incur in the urban sector.
    The model does not specify alternate policy prescriptions such as giving a wage subsidy to the urban sector and the same time restricting the migration of those rural workers.

    SUMMARY AND CONCLUSIONS;
    With a summary of what appears to be the consensus of most economists on the shape of migration and employment strategy. This would appear to have the following key elements:
    1. Creating an appropriate rural-urban economic balance; A more appropriate balance between rural and urban economic opportunities appears to be indispensable to ameliorating both urban and rural unemployment problems and to slowing the pace of rural-urban migration. The main thrust of this activity should be in the integrated development of the rural sector, the spread of rural nonfarm employment opportunities, improved credit access, better agricultural training, the re-orientation of social investments toward rural areas, improving rural infrastructure, and addressing shortcomings of rural institutions (including corruption, discrimination, and stratification), the presence of which has the effect of raising the cost of delaying out-migration.
    2. Expansion of small-scale, labor-intensive industries. The composition or “product mix” of output has obvious effects on the magnitude (and in many cases the location) of employment opportunities because some products (often basic consumer goods) require more labor per unit of output and per unit of capital than others. Expansion of these mostly small-scale and labor-intensive industries in both urban and rural areas can be accomplished in two ways: directly, through government investment and incentives and improved access to credit, particularly for activities in the urban informal sector, and indirectly, through income redistribution (either directly or from future growth) to the rural poor, whose structure of consumer demand is both less import-intensive and more labor-intensive than that of the rich.
    3. Eliminating factor price distortions; There is ample evidence to demonstrate that correcting factor price distortions primarily by eliminating various capital subsidies and curtailing the growth of urban wages through market-based pricing would increase employment opportunities and make better use of scarce capital resources.
    4. Choosing appropriate labor-intensive technologies of production; One of the principal factors inhibiting the success of any long-run program of employment creation in both urban industry and rural agriculture is the almost complete technological dependence on (typically laborsaving) machinery and equipment from the developed countries. Domestic and international efforts can help reduce this dependence by developing technological research and adaptation capacities in developing countries.
    5. Modifying the linkage between education and employment; The emergence of the phenomenon of the educated unemployed is calling into question the appropriateness of the massive quantitative expansion of educational systems, especially at the higher levels. Formal education has become the rationing tunnel through which all prospective jobholders must pass.

  34. NAME: OKO NKEM FRANKLINE
    REG NO: 2017/243813
    EMAIL: okofrankline5@gmail.com
    BLOG ADRESS: nkemfrankline.blogspot.com

    TOPIC:
    LEWIS FEI RANIS MODEL (SURPLUS LABOUR THEORY)And Harris Todaro Model Of Migration

    INTRODUCTION

    Lewis Fei Ranks model (surplus labour)
    is a dualism model in developmental economics or welfare economics that has been developed by John C. H. Fei and Gustav Ranis and can be understood as an extension of the Lewis model. It is also known as the Surplus Labor model.It recognizes the presence of a dual economy comprising both the modern and the primitive sector and takes the economic situation of unemployment and underemployment of resources into account, unlike many other growth models that consider underdeveloped countries to be homogenous in nature.

    Basics of the model/Main Argument

    According to this theory, the primitive sector consists of the existing agricultural sector in the economy, and the modern sector is the rapidly emerging but small industrial sector.
    Both the sectors co-exist in the economy, wherein lies the crux of the development problem. Development can be brought about only by a complete shift in the focal point of progress from the agricultural to the industrial economy, such that there is augmentation of industrial output. This is done by transfer of labor from the agricultural sector to the industrial one, showing that underdeveloped countries do not suffer from constraints of labor supply. At the same time, growth in the agricultural sector must not be negligible and its output should be sufficient to support the whole economy with food and raw materials. Like in the Harrod–Domar model, saving and investment become the driving forces when it comes to economic development of underdeveloped countries.

    Depiction of Phase1, Phase2 and Phase3 of the dual economy model using average output.
    One of the biggest drawbacks of the Lewis model was the undermining of the role of agriculture in boosting the growth of the industrial sector. In addition to that, he did not acknowledge that the increase in productivity of labor should take place prior to the labor shift between the two sectors. However, these two ideas were taken into account in the Fei–Ranis dual economy model of three growth stages. They further argue that the model lacks in the proper application of concentrated analysis to the change that takes place with agricultural development,. In Phase 1 of the Fei–Ranis model, the elasticity of the agricultural labor work-force is infinite and as a result, suffers from disguised unemployment. Also, the marginal product of labor is zero In
    Phase 2, agricultural surplus may exist as the increasing average product (AP), higher than the marginal product (MP) and not equal to the subsistence level of wages.

    According to Fei and Ranis, AD amount of labor (see figure) can be shifted from the agricultural sector without any fall in output. Hence, it represents surplus labor.
    After AD, MP begins to rise, and industrial labor rises from zero to a value equal to AD. AP of agricultural labor is shown by BYZ and we see that this curve falls downward after AD. This fall in AP can be attributed to the fact that as agricultural laborers shift to the industrial sector, the real wage of industrial laborers decreases due to shortage of food supply, since less laborers are now working in the food sector. The decrease in the real wage level decreases the level of profits, and the size of surplus that could have been re-invested for more industrialization. However, as long as surplus exists, growth rate can still be increased without a fall in the rate of industrialization. This re-investment of surplus can be graphically visualized as the shifting of MP curve outwards. In Phase2 the level of disguised unemployment is given by AK.
    Phase 3 begins from the point of commercialization which is at K in the Figure. This is the point where the economy becomes completely commercialized in the absence of disguised unemployment. The supply curve of labor in Phase 3 is steeper and both the sectors start bidding equally for labor.

    Connectivity between sectors

    Fei and Ranis emphasized strongly on the industry-agriculture interdependency and said that a robust connectivity between the two would encourage and speedup development. If agricultural laborers look for industrial employment, and industrialists employ more workers by use of larger capital good stock and labor-intensive technology, this connectivity can work between the industrial and agricultural sector. Also, if the surplus owner invests in that section of industrial sector that is close to soil and is in known surroundings, he will most probably choose that productivity out of which future savings can be channelized. They took the example of Japan’s dualistic economy in the 19th century and said that connectivity between the two sectors of Japan was heightened due to the presence of a decentralized rural industry which was often linked to urban production. According to them, economic progress is achieved in dualistic economies of underdeveloped countries through the work of a small number of entrepreneurs who have access to land and decision-making powers and use industrial capital and consumer goods for agricultural practices.
    Agricultural sector

    Land-Labor Production Function
    In (A), land is measured on the vertical axis, and labor on the horizontal axis. Ou and Ov represent two ridge lines, and the production contour lines are depicted by M, M1 and M2. The area enclosed by the ridge lines defines the region of factor substitutability, or the region where factors can easily be substituted. Let us understand the repercussions of this. If te amount of labor is the total labor in the agricultural sector, the intersection of the ridge line Ov with the production curve M1 at point s renders M1 perfectly horizontal below Ov. The horizontal behavior of the production line implies that outside the region of factor substitutability, output stops and labor becomes redundant once land is fixed and labor is increased.

    If Ot is the total land in the agricultural sector, ts amount of labor can be employed without it becoming redundant, and represents the redundant agricultural labor force. This led Fei and Ranis to develop the concept of Labor Utilization Ratio, which they define as the units of labor that can be productively employed (without redundancy) per unit of land. In the left-side figure, labor utilization ratio

    This mathematical relation proves that the non-redundancy coefficient is directly proportional to labor utilization ratio and is inversely proportional to the endowment ratio.
    (B) displays the total physical productivity of labor (TPPL) curve. The curve increases at a decreasing rate, as more units of labor are added to a fixed amount of land. At point N, the curve shapes horizontally and this point N conforms to the point G in (C, which shows the marginal productivity of labor (MPPL) curve, and with point s on the ridge line Ov in (A).
    Industrial sector.

    Capital-Labor Production Function
    Like in the agricultural sector, Fei and Ranis assume constant returns to scale in the industrial sector. However, the main factors of production are capital and labor. In the graph (A) right hand side, the production functions have been plotted taking labor on the horizontal axis and capital on the vertical axis. The expansion path of the industrial sector is given by the line OAoA1A2. As capital increases from Ko to K1 to K2 and labor increases from Lo to L1 and L2, the industrial output represented by the production contour Ao, A1 and A3 increases accordingly.
    According to this model, the prime labor supply source of the industrial sector is the agricultural sector, due to redundancy in the agricultural labor force. (B) shows the labor supply curve for the industrial sector S. PP2 represents the straight line part of the curve and is a measure of the redundant agricultural labor force on a graph with industrial labor force on the horizontal axis and output/real wage on the vertical axis. Due to the redundant agricultural labor force, the real wages remain constant but once the curve starts sloping upwards from point P2, the upward sloping indicates that additional labor would be supplied only with a corresponding rise in the real wages level.
    MPPL curves corresponding to their respective capital and labor levels have been drawn as Mo, M1, M2 and M3. When capital stock rises from Ko to K1, the marginal physical productivity of labor rises from Mo to M1. When capital stock is Ko, the MPPL curve cuts the labor supply curve at equilibrium point Po. At this point, the total real wage income is Wo and is represented by the shaded area POLoPo. λ is the equilibrium profit and is represented by the shaded area qPPo. Since the laborers have extremely low income-levels, they barely save from that income and hence industrial profits (πo) become the prime source of investment funds in the industrial sector.

    Here, Kt gives the total supply of investment funds (given that rural savings are represented by So)
    Total industrial activity rises due to increase in the total supply of investment funds, leading to increased industrial employment.
    Agricultural surplus.
    Agricultural surplus in general terms can be understood as the produce from agriculture which exceeds the needs of the society for which it is being produced, and may be exported or stored for future use.
    Generation of agricultural surplus.

    Agricultural surplus in the dual economy of Fei and Ranis
    To understand the formation of agricultural surplus, we must refer to graph (B) of the agricultural sector. The figure on the left is a reproduced version of a section of the previous graph, with certain additions to better explain the concept of agricultural surplus. We first derive the average physical productivity of the total agricultural labor force (APPL). Fei and Ranis hypothesize that it is equal to the real wage and this hypothesis is known as the constant institutional wage hypothesis. It is also equal in value to the ratio of total agricultural output to the total agricultural population. Using this relation, we can obtain APPL = MP/OP. This is graphically equal to the slope of line OM, and is represented by the line WW in (C).
    Observe point Y, somewhere to the left of P on the graph. If a section of the redundant agricultural labor force (PQ) is removed from the total agricultural labor force (OP) and absorbed into the industrial sector, then the labor force remaining in the industrial sector is represented by the point Y. Now, the output produced by the remaining labor force is represented by YZ and the real income of this labor force is given by XY. The difference of the two terms yields the total agricultural surplus of the economy. It is important to understand that this surplus is produced by the reallocation of labor such that it is absorbed by the industrial sector. This can be seen as deployment of hidden rural savings for the expansion of the industrial sector. Hence, we can understand the contribution of the agricultural sector to the expansion of industrial sector by this allocation of redundant labor force and the agricultural surplus that results from it.

    .
    CONCLUSION
    Summary and Conclusions We have endeavored to present the basic outlines of the labor surplus model of development and addressed the critiques of that model, some “red herrings,” readily disposed of, and other, more serious challenges from the micro-econometric branch of neo-classical economics.
    The central issue is whether wages are determined neo-classically or via a bargaining process at the early stages of development. We conclude that the neo-classical school which finds inelastic supply curves of labor is dealing with a cross-section static analysis of labor supply within the agricultural sector while the labor surplus model is dealing with the tracing of a dynamic reallocation of labor from a subsistence to a neoclassical organized sector in the dual economy. The neo-classical school’s attack on the labor surplus model is thus not warranted. We are dealing with different issues, ships passing in the night. The paper proceeds by marshalling data for a number of labor surplus developing countries showing that institutional wages lag behind productivity changes in the course of the unskilled labor reallocation process en route to a “turning point” when decades of inter-sectoral balanced growth have culminated in an unskilled labor shortage and the economy has lost its dual characteristic.

    Reference

    1. ^ Sadik-Zada, Elkhan Richard (2020). “Natural resources, technological progress, and economic modernization”. Review of Development Economics. doi:10.1111/rode.12716.
    2. ^ a b “Economnics4Development Website”. Surplus Labor Model of Economic Development. Archived from the original on 16 October 2011. Retrieved 12 October 2011.
    3. ^ Thirlwall, A.P (2006). Growth and Development: With Special Reference to Developing Economies. Palgrave Macmillan. ISBN 1-4039-9600-8.

    Harris Todaro Model Of Migration

    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.

    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 is 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 drive of rural-urban migration, while urban unemployment is local governments’ main concern in many cities.[1]

    The formal statement of the equilibrium condition of the Harris–Todaro model is as follows:
    • Let wr be the wage rate (marginal productivity of labor) in the rural agricultural sector.
    • Let le be the total number of jobs available in the urban sector, which should be equal to the number of employed urban workers.
    • Let lus be the total number of job seekers, employed and unemployed, in the urban sector.
    • Let wu be the wage rate in the urban sector, which could possibly be set by government with a minimum wage law.
    Rural to urban migration will take place if:

    Conversely, urban to rural migration will occur if:

    At equilibrium,

    With the random matching of workers to available jobs, the ratio of available jobs to total job seekers gives the probability that any person moving from the agricultural sector to the urban sector will be able to find a job. As a result, in equilibrium, the agricultural wage rate is equal to the expected urban wage rate, which is the urban wage multiplied by the employment rate.

    Conclusions

    Therefore, migration from rural areas to urban areas will increase if:
    • Urban wages (wu) increase in the urban sector (le), increasing the expected urban income.
    • Agricultural productivity decreases, lowering marginal productivity and wages in the agricultural sector (wr), decreasing the expected rural income.
    However, even though this migration creates unemployment and induces informal sector growth, this behavior is economically rational and utility-maximizing in the context of the Harris–Todaro model. As long as the migrating economic agents have complete and accurate information concerning rural and urban wage rates and probabilities of obtaining employment, they will make an expected income-maximizing decision.
    References
    1. ^ Zhao, Zhong (2003). “Rural-Urban Migration in China – What Do We Know and What Do We Need to Know?” (PDF). China Center for Economic Research Peking University.

  35. Avatar UDUMA IKECHUKWU OBASI says:

    NAME: UDUMA IKECHUKWU OBASI
    REG: 2017/241441
    EMAIL: ikechukwuuduma9@gmail.com

    Lewis-Ranis-Fei model (surplus labour model):

    The Lewis (1954) theory of dualistic economic development provides the seminal
    contribution to theories of economic development particularly for labour-surplus and resource-poor developing countries. In the Lewis theory, the economy is assumed to
    comprise the agricultural and non-agricultural sectors. The agricultural sector is assumed to have vast amounts of surplus labour that result in an extremely low, close to zero, marginal productivity of labour. The agricultural wage rate is presumed to follow
    the sharing rule and be equal to average productivity, which is also known as the institutional wage. The non-agricultural sector has an abundance capital and resources relative to labour. It pursues profit and employs labour at a wage rate higher than the agricultural institutional wage by approximately 30 percent (Lewis, 1954, ). The non-agricultural sector accumulates capital by drawing surplus labour out of the agricultural sector. The expansion of the non-agricultural sector takes advantage of the infinitely elastic supply of labour from the agricultural sector due to its labour surplus.
    When the surplus labour is exhausted, the labour supply curve in the non-agricultural
    sector becomes upward-sloping. Ranis and Fei (1961) formalised Lewis’s theory by combining it with Rostow’s (1956) three “linear-stages-of-growth” theory. They disassembled Lewis’s two-stage economic development into three phases, defined by the marginal productivity of agricultural labour. They assume the economy to be stagnant in its pre-conditioning stage. The breakout point marks the creation of an infant non-agricultural sector and the entry into phase one. Agricultural labour starts to be reallocated to the non-agricultural sector. Due to the abundance of surplus agricultural labour, its marginal productivity is extremely low and average labour productivity defines the agricultural institutional wage. When the redundant agricultural labour force has been reallocated, the agricultural marginal productivity of labour starts to rise but is still lower than the institutional wage. This marks the shortage point at which the economy enters phase two of development. During phase two the remaining agricultural unemployment is gradually absorbed. At the end of this process the economy reaches the commercialisation point and enters phase three where the agricultural labour market is fully commercialised

    Conclusion and policy recommendations:

    Having tested the Lewis-Ranis-Fei theory for the Chinese economy over 1965-2002 we will in the case of this study substitute the economy of Nigeria to that of China and implement the policy recommendations therein.The test shows that China’s economic growth is mainly attributable to the development of the non-agricultural sector(which is similar to that of Nigeria). This is driven by rapid capital accumulation as well as
    employment growth. The reallocation of labour away from agriculture has made a
    positive net contribution to China’s rapid economic growth by around 1.23 percent. The
    rise in the marginal productivity of agricultural labour indicates the absorption of
    redundant agricultural labour since the 1978 Economic Reform. However, the marginal
    productivity of agricultural labour is still lower than the initial low average productivity
    of agricultural labour. This implies the continued existence of disguised agricultural
    unemployment. This suggests that the Chinese economy has entered the
    Lewis-Ranis-Fei phase two of development but has not yet achieved phase three. The
    continuing widening productivity gap between the two sectors calls for the removal of
    market restrictions and government interventions so as to allow the continued
    absorption of surplus labour.
    Several policy recommendations are tentatively suggested. First and foremost, more
    effort should be made in promoting employment to effectively absorb the remaining
    labour surplus and promote China’s economic development. This can be achieved by
    further relaxing the Hukou restrictions on migration, increasing labour market flexibility
    and improving the allocative efficiency of labour. It can also be achieved by
    encouraging the development of private enterprise to create more employment
    opportunities. Second, China’s government should continue implementing the Sunshine
    Policy, initiated in 2003, designed to provide rudimentary job training, recruitment
    information and information about conditions in the destination cities to rural migrants.
    This will not only help facilitate employment of rural migrants but also satisfy the
    increasing demand for skilled labour in the growing non-agricultural sector. Third,
    agriculture could be promoted by tax breaks, direct subsidies and most importantly, by
    removing price controls on agricultural products. Agriculture could thus be
    commercialised and the economy would enter phase three of economic development.

    Harris Todaro migration model:

    In the 1960s the government of newly independent Kenya faced a difficult situation: Unemployment in Nairobi and other major cities was high and apparently rising. To cope with this problem, Tripartite Agreements were reached in which private-sector and public-sector employers agreed to increase employment in exchange for unions agreeing to hold wages at their current levels. The larger number of jobs was expected to reduce unemployment. However, in the event, urban unemployment appeared to have increased following the Tripartite Agreements rather than decreased, as far as anyone could tell.
    In light of these events, John Harris and Michael Todaro formulated the Harris-Todaro model to explain the puzzle. At the core of the Harris-Todaro model were the following features. First, real wages (adjusted for cost-of-living differences) are higher in urban formal-sector jobs than in rural traditional-sector jobs. Second, to be hired for a formal-sector job, one has to be physically present in the urban areas where the formal-sector jobs are located. Third, and as a consequence of the first two features, more workers search for formal-sector jobs than are hired, employers hire some of the job seekers but not all of them, and those not hired end up unemployed. Fourth, for equality to be maintained between the expected wage associated with searching for an urban job and the expected wage associated with taking up a lower-paying rural job, the equilibrium arising in such a setting is characterized by urban unemployment. And fifth, any temporary difference in the expected wages between one sector and another is eroded as workers migrate from the low-expected-wage labor market to the high-expected-wage labor market.
    The Harris-Todaro model produced two powerful policy results. The first concerns the policy of formal-sector job creation to employ the unemployed (who, in the Harris-Todaro model, are all in urban areas, because that is where the formal-sector jobs are assumed to be located). Such a policy, they concluded, would increase the formalsector labor force by more than the number of new jobs created, thereby raising the number of urban unemployed. Thus, the solution to urban unemployment is not to create urban employment.
    The second policy option that Harris and Todaro considered was a policy of rural development. If such a program could increase the rural traditional-sector wage, unemployment would then fall. Thus, in the Harris-Todaro model, the solution to urban unemployment is rural development.
    Soon after the model was published, the government of Kenya followed the Harris-Todaro precepts by putting into place an integrated program of rural development. The result was that unemployment in Kenya fell.
    Harris and Todaros fundamental contribution was building a model that fit the stylized facts of the labor market they were analyzing and that was based on sound micro foundations. The fact that the model remains part of the economists intellectual toolkit today is a tribute to its basic insight and enduring analytic power.

    The original model has been both simplified for some purposes and expanded for others by later contributors, including Stiglitz, Bell, Khan, Anand and Joshi, Bourguignon, Corden and Findlay, and others (Fields 2005). Harris and Todaro formulated general processes for determining prices of the products produced by the two sectors and also for determining a rural-sector wage that varies inversely with the number of people in the rural sector. A simplified version of the Harris-Todaro model was developed in which product prices and rural-sector wages are taken as constant. Numerous additional analytic and policy results were derived in the simplified Harris-Todaro model. At the same time, some of the assumptions of the Harris-Todaro model were judged to be too restrictive, and so the model was generalized in the years that followed to nest their specific formulation within a broader framework. The initial Harris-Todaro model has been extended to allow for on-the-job search from a rural agriculture setting, the existence of an urban informal sector, preferential hiring of the better-educated, employment fixity, duality of production conditions and earnings levels within the rural sector, capital mobility, endogenous urban wage setting, risk aversion, and a system of demand for goods, among other factors.
    As an early multisector labor-market model, the Harris-Todaro model set forth a principal alternative framework for policy analysis. It showed how employment and wage levels in one labor market reflect supply, demand, and institutional conditions not only in that labor market but also in other labor markets.
    In terms of pro-poor economic growth, the Harris-Todaro model and other multisector-labor-market models can help policy makers avoid two mistakes. One is to assume that development efforts should be channeled to the sectors where the poor are. The other is to assume that efforts should always be focused on getting the poor out of the sectors in which they now are. Careful cost-benefit analysis based on well-specified
    labor-market models is required to decide among such alternatives.

    Findings and recommendations:

    The fundamental contribution of Harris and Todaros rural-urban two sector migration model was to build a model that fit the stylized facts of the labour market. On the lines of the theory, developing countries (e.g Nigeria) adopted program on integrated rural development which could encouraged an increase in the rural traditional sector wage. The theory proves that the higher the unemployment rate, the lower is the probability of new migrants from the countryside actively seeking formal sector employment who are unable to find it. The significant findings of the theory are:
    first, if the expected urban wage equals rural income, there is no incentive to migrate.
    Second, if the expected urban wage is greater than rural income, there is a great incentive to move from rural to urban area.
    Third, if the expected urban wage is less than rural incomes, there would be an incentive to move in other direction.
    Fourth, the expected urban wage depends on what type of job migrant is engaged in. Therefore, the Haris Todaros model helps policy-makers to avoid two mistakes. One is to assume that development efforts should necessarily be channeled to the sectors where the poor are. The other is to assume that efforts should necessarily be focused on getting the poor out of the sectors in which they presently are.
    Thus, recommended policies should be the ones poised to eradicate both poverty level and unemployment rate among the dwellers of rural areas. Reduction/ eradication of poverty in the form of poor wage gain will on the other hand reduce the incentive of moving to the urban areas for greener pasture search such that the problems of high immigration rate will be avoided.

  36. Avatar NWACHUKWU MARYJANE says:

    Name: NWACHUKWU MARYJANE
    Reg. Number: 2017/249533
    Economics Major

    LEWIS FEI RANIS MODEL OF SURPLUS LABOR THEORY.
    This model was developed by John C. Fei and Gastuv Ranis in the 1980s. It is regarded as a dualistic modeland also can be seen as the extension of the Lewis model. The model is also known as the surplus labor theory and it takes into account the dualistic nature of an economy from primitive to modern sector. It was used to prove unemployment and underemployment of resources, this is what differentiate the model from other growth models who view the underdeveloped countries as homogeneous. The model discribe the primitive sector as characterized by the agricultural sector while the modern sector is noted as the development of industries the two sectors are the the most notable aspect of the economy and they co-exist. They are also seen as where the basis of development lies i.e a fast growing agricultural sector in an economy will be noted as sign of underdevelopment while a high rate of industrial growth will mean a sign of a developing economy. Therefore development can be achieved by redirecting more labor to the industrial sector than in the agricultural sector, this is not I anyway campaigning against the agricultural sector or under estimating it’s relevance to economics growth. The model noted that there is a need to sustain agricultural production so as to ensure adequate good supply and raw material for industry. Though this was mentioned more emphasis was laid on the importance of industry as a draw way to development and this was one of criticism of the Lewis model.

    Basics of the Lewis Fei Ranis model
    The model’s inability to recognize the important role of agriculture was one of the loop holes more also they failed to acknowledge that increase in productivity of labor should prior to the shift in labor between two sectors. It is important to note that the factors mentioned above where included in the Fei Ranis dual economy model of three growth stage.
    Phase one: the elasticity of the agricultural labor work-force is infinity and suffers from a disguised unemployment as a result.
    Phase two: the agricultural sector productivity rises and this leads to increase in the industrial growth. In the Fei–Ranis dual economy model of three growth stage agricultural surplus may exist as the increasing average product (AP), higher than the marginal product (MP) and not equal to the subsistence level of wage. this can be seen in the as shown below
    Phase one: AL=MP here Fei and Ranis argue that aggregate demand (AD) amount of labor may be shifted from agricultural sector to industry without a fall in output, there is surplus labor

    Phase two: AP>MP, here when the AD is reached MP will start to increase likewise industrial labor from zero to a value equal to AD. There is a downward fall in AP at this level and the is brought about by shift of laborers from agricultural sector to industry sector and a drop in the industrial output is also notice as a result of shortage in agricultural food supply. Therefore we can say that the tow sectors are interrelated and both as such should be given adequate attention at all level.

    ASSUMPTIONS:
    They assume the economy has two sectors which are rural and urban sector.
    They assume that there is surplus labour in subsistence sector.
    They emphasize on the importance of saving in both sector.
    Land has no role as a factor of production.
    They assume that population growth is an exogenous phenomenon.
    They assume that the output in agricultural sector is a function of land and labour only.

    CRITICISM
    The model ignored the cost involved in training the unskilled workers transferred from the subsistence sector.
    The model assumed that besides labour there is an unlimited supply of entrepreneur in the capitalist sector and this is not true in most developed countries.
    When labour is transferred from the subsistence sector, share of agricultural output falling to each one left in the agricultural sector will start rising.
    The assumption that disguised unemployment exists in the agricultural sector were not accepted by many economists, according to them the production in the subsistence sector will be affected when labour is withdrawn from it.
    The model assumed that there already exists a market for the industrial products in the country which is wrong as people of an underdeveloped country may not be able to purchase the products.
    It is not easy to transfer labour from the subsistence sector to the capitalist sector by offering them an incentive of a little higher wage and the mobility of labour is very low.

    COMPARISON OF THE FEI-RANIS MODEL TO THE REAL WORLD.
    The model failed to recognize and put into consideration the sluggish economic situation present in less developing countries (eg Nigeria). If they had considered that they would find out that the agricultural backwardness was a result of the institutional structure that prevailed.The model also did not take into account the difference in natural endowment which varies from country to country.
    The model also assumed a closed model i.e there is absence of foreign trade in the economy which is unrealistic as raw materials and other products can’t be imported, an example is Japan.
    CONCLUSION
    These limitations do not undermine the importance of the Fei-Ranis model for the economic development of labour surplus countries. It systematically analyses the development process from the take-off to self sustained growth through the interaction of the agricultural sectors of an underdeveloped economy.

    REFERENCES

    1. ^ Sadik-Zada, Elkhan Richard (2020). “Natural
    resources, technological progress, and economic
    modernization” . Review of Development Economics .
    doi :10.1111/rode.12716 .
    2. ^ a b “Economnics4Development Website” . Surplus
    Labor Model of Economic Development . Archived from
    the original on 16 October 2011. Retrieved 12
    October 2011.
    3. ^ Thirlwall, A.P (2006). Growth and Development: With
    Special Reference to Developing Economies . Palgrave
    Macmillan. ISBN 1-4039-9600-8 .
    4. ^ a b c d e f g h i j k l m Subrata, Ghatak (2003).
    Introduction to Developmental Economics . London:
    Routledge. ISBN 0-415-09722-3 .
    5. ^ “Ranis-Fei model vs. Lewis Model” (PDF).
    Developmentafrique.com . Archived from the original
    (PDF) on 30 May 2012. Retrieved 14 October 2011.

    THE HARRIS TODARO MODEL OF MIGRATION
    INTRODUCTION
    The Harris Todaro model was named after John R. Harris and Michael. The model was developed in 1970 and has been in use since then in development Economics and welfare economics to explain rural-urban migration. The Harris Todaro model assumes that migration decision is influenced by differences between expected income of the rural and urban areas rather than difference in wage. In other words rural-urban migration will continue to exist even when there exist high unemployment in the urban areas, this is due to difference in expected urban income compare to the expected rural income.
    Equilibrium in the model can also be reached when expected wage of the urban area i.e (actual wage adjusted for unemployment rate) is equal to the marginal productivity of agricultural worker. According to the model unemployment is non-existent in the agricultural sector and there exist a perfect competition between agricultural and labor market . In other words the agricultural rural wage is equivalent to agricultural marginal productivity and for equlibrum to exist, the rural urban migration will be equal to zero. Since both the expected income are equal. This will as well mean there is no incentive to migrate from rural area to urban areas. But in a situation where the expected urban wage is greater than rural income, this is an indication that there is great incentive to migrate and vice versa.

    THE HARRIS-TODARO MODEL
    A. Assumptions
    Harris and Todaro studied the migration of workers in a two-sector economic system (rural sector and urbansector). The difference between these sectors are the type of goods produced, the technology of production and the process of wage determination. The rural sector is specialized
    in the production of agricultural goods. The productive process of this sector can be described by a Cobb-Douglas production function: where Ya is the production level of the agricultural good, N a is
    the amount of workers used in the agricultural production, A a > 0 and 0 < f 0 and 0 < a 0 and g > 0 are parametric constants. g is the elasticity of p with respect to the ratio Y m / Ya . The overall population of workers in the economy is N , which
    is kept constant during the whole period of analysis. By the assumption there are only two sectors and rural prices are wholly flexible, which implies that there is full employment in the rural area, i.e., all workers living at the rural sector are employed at any period. Then at any period the following
    Equality is verified:

    B. Temporary Equilibrium
    Given a parametric constant vector (A a , A m ,f,a,r,g), an initial urban population N u , and a minimum wage w m one can calculate the temporary equilibrium of the economic system by using eqs. (1 – 6). From eq. (4) one can find the employment level at the manufacturing sector Replacing eq. (7) in eq. (2) we get the production level of the manufacturing sector From eq. (6) one can obtain the relation which is used with eq. (1) to obtain the agricultural production By using eqs. (5), (8) and (10) the terms of trade are determined Finally, by using eqs. (3), (9) and (11), the rural wage in units
    of manufacturated good is obtained In sum, the vector (N m , Ym , N a , Ya , p , w a ) configures a
    temporary equilibrium that might be altered whether occurs a migration of workers, induced by the differential of sectorial wages, which changes the sectorial distribution of overall population.

    C. The Long Run Equilibrium
    Harris and Todaro, in determining the long run equilibrium, i.e., the absence of a net rural-urban migratory flow, argue that the rural workers, in their decision on migrating to the urban area, estimate the expected urban wage, , defined as: The ratio N m / N u , which is the employment rate, is an estimative of the probability that a worker living at urban sector gets a job in this sector.
    As mentioned before, the key assumption of the model of Harris and Todaro is that there will be a migratory flow from the rural to the urban sector while the expected urban wage is higher than the rural wage. Thus, the long run equilibrium is attained when the urban worker population reaches a level such that the expected urban wage equates the rural wage: This equality is known in the economic literature as the Harris- Todaro condition . Harris and Todaro argue that the differential
    of expected wages in eq. (14) can be a constant value d ¹ 0. When this differential reaches d, the net migration ceases. This generalized Harris-Todaro condition can be expressed as follows: The level of the urban population that satisfies the eq. (15), i.e., the equilibrium urban share = /N , is determined from the solution of the equation resulting from substitution of equations (12), (13) in eq. (15): The solution of eq. (16) is parameterized by the vector ( A a , A m ,r,g,a,f, w m ). Harris and Todaro [1], in order to evaluate the stability of the long run equilibrium, postulate a mechanism of adjustment that is based on the following function of sign preservation: The differential equation that governs the state transition in the model of Harris and Todaro is obtained by replacing equations (12), (13) in eq. (17). Based on this postulated adjustment process, Harris and Todaro [1] show that the long run equilibrium is globally asymptotically stable. This means that the economy would tend to long run equilibrium with unemployment in the urban sector generated by the presence of a relatively high minimum wage for all possible initial conditions. From now on we will refer to the long run equilibrium simply as equilibrium. Based on the numerical solutions of eq. (16) one can evaluate the impact that the variation of the minimum wage and the elasticity of the terms of trade on the equilibrium. In Fig. 1 we see that under the hypothesis of a Cobb-Douglas technology, the equilibrium urban share, does not depend on the minimum wage w m . However, changes in the value of wm reduces the labor demand on the manufacturing sector what results in higher unemployment rates in the equilibrium.

    Todaro Migration Model: A Graphical Exposition with a
    Numerical Example:
    This is a graphical exposition of the model in Todaro’s Economic Development text (5th edition, 1994).
    1. Our economy has eight million workers, and consists of two sectors, rural and urban, with demand curves for labor will look like the curve below:

    2. Workers can move back and forth freely between town and country. Where will they go? Under conditions of wage flexibility, workers will always look for the highest wage, so that equilibrium will require wage equalization between the two sectors, with the entire workforce of 8 million employed. This can be demonstrated by flipping the urban graph horizontally, like tIn this

    Equilibrium both rural and urban employment will pay $1.50 a day, with 4.5 million people in agricultural employment and 3.5 million working in manufacturing. In this case then, the equilibrium condition is simply WA = WM.
    3. Suppose that the urban wage (WM) is institutionally set at $4 a day. In other words, the urban wage is no longer flexible. The rural wage remains flexible.

    Reading off the demand curve for urban employment, you can see that only 2 million fortunate people will get manufacturing jobs at that wage. What will the remaining 6 million workers in the economy do? Under simple micro assumptions, they will take whatever work they can find in the agricultural sector. So 6 million unlucky people take rural jobs, and the rural wage is $1 a day. Todaro’s key insight is that under these conditions, a $4 a day wage looks awfully good to someone making $1 a day, and such a person might be willing to put up with the prospect of unemployment in order to have a chance at such a job. If that is the case the situation shown at right is not equilibrium, and will not persist for long.
    4. Todaro reasoned as follows. Suppose that the person who is considering migrating compares the rural wage to an urban wage that is adjusted by the prospect of getting such a job. A simple way to represent the probability of getting urban employment is the total number of urban employed (LM) divided by the total urban labor force (LU). In other words the equilibrium condition — the point at which a worker would be indifferent between being in the city or the countryside – is actually: number of employed manufacturing
    Workers (LM)
    WA =
    ————————————————————– X WM
    total number of urban workers
    (LU)
    In this case the situation represented in (3), in which the entire urban workforce was employed, would suggest to a rural worker a pretty good chance of getting an urban job if he/she move to the city. So if we started with the situation in (3), people would migrate. As they migrated, two things would happen: the rural wage would rise, and the urban workforce (and with it urban unemployment) would also rise. The first change would raise the attractiveness of rural employment, and the second change would reduce the attractiveness of urban employment. Just to be sure we understand the mechanics of the model, suppose that we start with the situation in (3), and 1 million people then leave thecountryside and arrive in the city.
    The rural wage will rise to $1.25 a day. Two thirds of the urban workforce will now be employed (the number of employed urban workers does not change because the wage is fixed). Are we in equilibrium? Not yet, according to the model. Plugging in numbers, WA = $1.25 and WM = $4. But rural workers will perceive a 2/3 (LM/LU) chance of getting an urban job, yielding a benefit of $2.33 a day to being in the city. Rural-urban migration will continue.

    5. The equilibrium condition WA = (LM/LU) x WM can actually generate for us a set of rural wage rates and rural/urban residence patterns that would make workers indifferent between being in the city or the country. This “locus” of equilibrium points is represented by the purple dashed line below.

    As you work down the locus, lower rural wages are compatible, in equilibrium, with more people crowding into the city and creating lower urban employment rates. For example it would have required a rural wage of $2.33, in the example above, to produce an equilibrium (point A). But our rural sector, sadly, cannot employ 5 million workers at $2.33 a day, so that equilibrium is not attainable. The point represented at Z, where our equilibrium locus intersects the demand curve for
    rural labor, is attainable: at this point the rural wage of $2 a day and the urban employment rate of 50% fulfill the equilibrium condition stated above:$2 = (2 million/4 million) x $4 No further workers will migrate.

    conclusion:
    Harris and Todaro used the Rural urban migration model to examine how movement from one location to another affect economics activities of a place. They also looked at the different causes or reasons why people are likely to migrate, i.e if the urban expected wage rate is higher than the rural income, people are likely to relocate from rural area to urban areas, in the other hand if the rural expected wage is equal to urban expected wage then people may not want to move because they have similar chance of survival and this is when we say that the urban rural expected wage is at equilibrium.

    References:
    .Harris, John R. & Todaro, Michael P. (1970), “Migration,
    Unemployment and Development: A Two-Sector
    Analysis”, American Economic Review , 60 (1): 126–142,
    JSTOR 1807860

    . Neary, J. Peter (1981). “On the Harris-Todaro Model with
    Intersectoral Capital Mobility”. Economica. 48 (191):
    219–234. doi :10.2307/2552914 . JSTOR 2552914 .

  37. Avatar AKWOR IFEANYI FRANK ECONOMICS/SOCIOLOGY. REG NUMBER:2017/249302 says:

    Lewis-Fei-Ranis Model of Economic Growth

    One of the best known early theoretical models of development that focused on the structural transformation of a primarily subsistence economy was that formulated by Nobel Laureate W. Arthur Lewis in the mid-1950s, and later modified, formalized, and extended by John Fei and Gustav Ranis. The Lewis two-sector model became the general theory of the 1960s and early 1970s, and it is sometimes still applied, particularly to study the recent growth experience in China and labor markets in other developing countries.
    The Fei-Ranis model is an improvement over the lewis model. John Fei and Gustav Ranis analyze the transition process through which an underdeveloped economy hopes to move from a condition of stagnation to one of self-sustained growth.
    The theory relates to underdeveloped labor surplus and resources; poor economy in which the vast majority of the population is engaged in agriculture amidst widespread unemployment and high rates of population growth.

    ASSUMPTIONS OF THE MODEL

    1. There is a dual economy divided into a traditional and stagnant agricultural sector and an active industrial sector.
    2. The output of the agricultural sector is a function of land and labor alone.
    3. There is no accumulation of capital in agriculture except in the form of land reclamation.
    4. Land is fixed in supply.
    5. Population growth is taken as an exogenous phenomenon.
    The real wage in the industrial sector remains fixed and is equal to the initial level of real income in the agricultural sector. It is called an institutional wage.
    6. Workers in either sector consume only agricultural products.
    Given these assumptions, Fei and Ranis analyze the development of a labor surplus economy into three phases;
    In the first phase, the disguised unemployed workers who are not adding to agricultural output are transferred to the industrial sector at a constant institutional wage.
    In the second phase, agricultural workers add to agricultural output but produce less than the institutional wage they get. Such workers are shifted to the industrial sector. If the migration of the workers to the industrial sector continues, a point is eventually reached when farmworkers produce output equal to the institutional wage.
    In the third phase, which makes the end of the take-of and the beginning of the self-sustained growth when farmworkers produce more than the institutional wage they get. In this phase, the surplus labor is exhausted and the agricultural sector becomes commercialized.

    CRITICISMS OF FEI-RANIS MODEL
    1. Commercialization of agriculture leads to inflation. According to the model, when the agricultural sector enters the third phase, it becomes commercialized, but the economy is not likely to move smoothly into a self-sustained growth because inflationary pressure will start.
    2. Supply of land is not fixed. Fei-Ranis begins with the assumption that the supply of land is fixed during the development process. In the long run, the amount of land is not fixed, as the statistics of crop average in many Asian countries reveal.
    3. Institutional wage not constant in the agricultural sector. The model assumes that the institutional wage remains constant in the first two phases even when agricultural productivity increases. This is unrealistic because with a general rise in agricultural productivity farm wages also tend to rise.
    CONCLUSION
    However, these limitations do not undermine the importance of the Fei-Ranis model for the economic development of labor surplus countries. It systematically analyses the development process from the take-off to self-sustained growth through the interaction of the agricultural and industrial sectors of an underdeveloped economy.

    THE HARRIS-TODARO MODEL OF MIGRATION
    The Harris-Todaro model is based on the experiences of tropical African facing the problems of rural-urban migration and urban unemployment. The labor migration is due to rural-urban differences in average expected wages. The minimal urban wage is substantially higher than the rural wages. If more employment opportunities are created in the urban sector at the minimum wage, the expected wage shall tend to rise and rural-urban migration shall be induced leading to growing levels of urban unemployment. To remove urban unemployment, Harris and Todaro suggests a subsized minimal wage through a lump sum tax.

    ASSUMPTIONS OF THE HARRIS-TODAROS MODEL
    1. There are two sectors in the economy: the rural or agricultural sector (A) and the urban or manufacturing sector (M).
    2. The model operates in the short run.
    3. Capital is available in fixed quantities in the two sectors.
    4. The number of urban/manufacturing jobs available is exogenously fixed.
    5. Rural-urban migration continues so long as the expected urban real income is more than the real agricultural income.
    6. The rural wage equals the rural marginal product of labor and the urban wage is exogenously determined.
    7. There is perfect competition among producers in both sectors.

    MATHEMATICAL EXPRESSION OF THE HARRIS-TODARO MODEL
    Output in the rural sector is suppose to be a function of labour so that the production function for agricultural good is;
    Xa = f (Na, L-bar, K-bar) f’>0; f”0; f ” 0.
    P is the price of agricultural good in terms of the price of manufactured good which is a function (p) of the relative output of agricultural and manufactured goods.
    The agricultural wage equals the value of marginal product (MP) of labor expressed in terms of the manufactured good,
    Wa = f’a (Na) = p(f’m).
    In the urban sector the producers are wage- takers and they aim at profit maximization which means that the urban market wage is;
    Wa = f’m (Nm).
    The urban expected wage which leads to the migration of workers from the rural to the urban sector is given as;
    Wu = W-bar m x Nm/Nu, Nm/Nu ≤ 1.
    Where the expected real wage (Wu) in the urban sector is equal to the urban real minimum wage (Wm) adjusted for the proportion of the total urban labor force (Nu) actually employed.

    POLICY IMPLICATIONS OF THE H-T MODEL
    Harris-Todaro have drawn a few important policy implications of their model. According to them, the payment of minimum wage to the additional industrial worker will induce more rural-urban migration. To solve this problem of an institutional determined wage that is higher than the equilibrium level, labor should be employed according to a shadow wage and /or at a payroll subsidy wage. Since the opportunity cost (I.e shadow wage) of an agricultural worker is lower than the marginal product of an industrial worker, the implementation of shadow wage criterion will have important effects on the level of agricultural output and on urban unemployment.

    CRITICISM OF THE HARRIS-TODARO MODEL
    1. The Harris-Todaro model does not specify alternate policy prescriptions such as giving a wage subsidy to the urban sector and at the same time restricting the migration of those rural workers who are not able to find jobs in the urban sector.
    2. Harris-Todaro suggest non-distortionary lump sum tax to finance subsidy, but a lump sum tax is seldom non-distortionary.
    3. This model does not consider or incorporate the cost of rural-urban migration or the relatively higher costs of urban living which the migrants have to incur in the urban sector.
    4. The model does not take into consideration the generation of savings as a source of financing subsidy. Though savings are low in LDCs, yet they are an important source of non-distortionary finance to subsidise wages.
    CONCLUSION
    Despite these criticisms, the Harris-Todaro model is more realistic than the other dual economy models because it tries to tackle the problem of rural-urban migration that actually exists in LDCs. For instance the Lewis model assumes that there is no unemployment in the urban sector and when rural-urban migration takes place, the number of new jobs created in the urban sector exactly equals the number of migrants. This is unrealistic.

  38. Avatar ANTHONY OLUCHI PRECIOUS 2017/249486 says:

    THE LEWIS-FEI-RANIS MODEL (SURPLUS LABOUR THEORY)
    The Nobel Laureate, W. Arthur Lewis in the mid 1950s presented his model of supply of labor or of surplus labor economy. By surplus labor it means that part of manpower which even if is withdrawn from the process of production there will be no fall in the amount of output. It is also known as the two sector model, and the surplus labour model. It focused on the need for countries to transform their structures, away from agriculture, with low productivity of labour, towards industrial activity, with a high productivity of labour.

    ARGUMENTS OF THE MODEL
    In the Lewis model, the underdeveloped economy consists of two sectors; the traditional and the industrial sector. The traditional sector which is the overpopulated rural subsistence sector is characterized by zero marginal productivity; a situation that permits Lewis to classify this as ‘surplus labour’ in the sense that it can be withdrawn from the traditional agricultural sector without any loss of output. On the other hand, the industrial sector is characterized by high productivity which results from gradual transfer of labour from the subsistence (traditional) sector to the modern urban industrialized sector.
    The primary focus of the Lewis model is on both the process of labour transfer and the growth of output and employment in the modern (industrial) sector which is brought about by output expansion in the sector. The speed with which this expansion occurs is determined by the rate of industrial investment and capital accumulation in the modern (industrial) sector. Such investment is made possible by the excess of modern sector profits over wages on the assumption that capitalist reinvest all their profits. Lewis also assumed that the level of wages in the industrial sector was constant and determined as a given premium over a fixed average subsistence level of wages in the traditional agricultural sector. At the constant urban wage, the supply curve of rural labour to modern sector labour supply is considered perfectly elastic.

    CONCLUSION
    To conclude, the Fei-Ranis model is of the opinion that transfer of labour from one sector to another in the economy will lead to economic development of both sectors of the economy, and the wage rate will still be constant between both sectors. If we were to apply such school of thought in the Nigerian economy, this is what is likely to occur; if in Nigeria doctors earn one million naira every month while farmers earn say two hundred thousand naira every month, according to the Fei-Ranis model more people will begin to shift to become doctors reducing the number of farmers and in the long run the wages of farmers will equal that of doctors due to the lower number of farmers there will be hike in food prices which will cause farmers to earn the same amount as doctors. Still using Nigeria as our real world case-study, such a situation will not occur because if more people shift to become doctors, there is no guarantee that even if numbers of doctors increase that the same wage rate will prevail because the country is very populated and usually where there is excess supply of labour real wage rate decreases. So the theory of Fei-Ranis model would not work in a country like Nigeria because it did not take into account the huge population of the country and it also neglected the fact that Nigeria is densely populated, meaning that even if there is a huge shift in labour to study doctors there will also be an equivalent shift from the industrial sector to the agricultural sector. The theory only sees labour shifts from agricultural to industrial, it does not consider the situation of labour shift from industrial to agricultural.
    Note that the above conclusion was drawn based on the writer’s thought process when comparing Nigeria’s current economic situation with the criticisms, basic assumptions and arguments of the Fei-Ranis model. No empirical or statistical data was used.

    HARRIS-TODARO MODEL OF MIGRATION
    It has been realized that in order for an economy to develop or grow, a large amount of labor has to be transferred from the traditional (or backward)
    agricultural sector in rural are as where the productivity of labor is low (or negligible, or zero, or even negative) to the modern manufacturing sector where the productivity of labor is higher and rising due to capital accumulation in that
    sector.This model of migration by Harris-Todaro is generally an offshoot of the dualistic model of development economics.
    TheHarris-Todaro model therefore assume that migration from rural to urban areas depend primarily on the difference in wages between the rural and urban labour markets. An equilibrium is said to be reached in the Harris-Todaro model 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 main idea of the Harris-Todaro model is that labour migration in underdeveloped countries is due to rural-urban differences in average expected wages rather than actual wages. The migrants consider the various opportunities of employment available to them in rural and urban sectors and choose the one that maximises their expected wages from migration.

    ASSUMPTIONS
    1. It is based on the premise that a fixed wage leads to an outbreak of distortion and urban unemployment.
    2. The economy consist of two sectors namely agricultural sector and manufacturing sector.
    3. Wages are flexible and equal to the marginal product of labour according to profit maximization in the rural sector.
    4. Migration between the rural and urban sectors will cease when the urban-expected wage is equal to the rural expected wage.
    5. Migration is two stage process. In the first stage, migrant workers find jobs in the informal sector. In the second stage, they move to the formal sector.

    CONCLUSION
    Application to Nigeria as a developing nation, This phenomenon is obviously seen in a country like Nigeria. There has been a large influx of people migrating from rural areas to urban areas over the years. Individuals who migrate to urban areas hope or expect to get higher incomes than the average wage prevailing in rural areas or villages. Unfortunately, when they migrate to urban areas, the reality is that there is usually less job available to them and this results in rise in unemployment in the urban areas. An example of an urban area where this is evident in Nigeria is the urban area of Lagos where there is high unemployment.

  39. Avatar NAME: OKORIE LOVELYN AGBAI REG NO: 2017/249399 DEPARTMENT: ECONOMICS/SOCIOLOGY says:

    The Lewis Fei-Ranis model is for overpopulated and under developed economy. It is based on dualistic economic development because The theory explains a way the industrial sector and agricultural sector can grow simultaneously without a lapse in the other or in the improvements rather than at its expense. There is always a unique, sole characteristic of surplus agricultural labor found in this kind of economy. The model is an attempt to balance agricultural and industrial growth in these economies. Lewis previously held that Economic growth in such economy can be achieved by investments in the non-agricultural sector by extracting surplus labor in the agricultural sector. But John Fei and Gustav explained how increase in productivity in agricultural sector would be helpful in promoting industrial sector too. The model explains that the complete shift the focus of progress from the agricultural to industrial economy does not mean that agricultural sector should be negligible rather its output should still be sufficient to support the whole economy with food and raw materials. With the assumption that large proportion Of the high population in these countries is engaged in agriculture and still agriculture is stagnant therefore marginal productivity of labor is zero and negative in agricultural sector while there are certain non agrarian sectorsIn the economy where there is reduced use of capital. This model suggests that if this surplus labor in the agricultural sector is transferred to industrial sector where their productivity will increase, economic development will be taking place.
    They argue that an economy goes through three phases of development. In phase 1, marginal product of labor is equal to zero. The first phase is where surplus labor Can be withdrawn from agricultural sector without changing agricultural output. In the second phase of the development, additional output due to an increase in labor begins to rise as transfer takes place from agricultural sector to industrial sector, average Product falls showing an increase in real wages of industrial workers because sThere is shortage of food supply. The real wages in industrial sector is fixed and equal to real income in agricultural sector. These wages are called institutional wages. in the second stage labor surplus exist where Apl>MPL But it is not equal to institutional wages. If the migration to industrial sector continues, there will be a time from workers produce output that is equal to institutional wages.
    The third stage is characterized by self sustained growth where farm workers produce more than the institutional which they get because disguised unemployment has been eliminated. Surplus labor ends and the agricultural sector becomes commercialized sector. MPL here is greater than CIW, disguised unemployment is eliminated. As labor is transferred to industrial sector there will be labor shortage in the agricultural sector so industrial sector cannot get the labor at the same prevailing constant wages therefore the wages in the industrial sector will rise.
    From my own point of view the Fei-Ranis model did not take into account the very possible case where a constant transfer of labor from the agricultural sector to the industrial sector causes an extreme shortage of labor in the agricultural sector the model holds that the rate of labor transfer must exceed the rate of population growth. If the largest proportion of the workforce in the country goes to the industrial sector outputs will not be anything close to sufficient to support the whole economy with food and raw materials as Nigeria is facing now. This model is prevalent in Nigeria where labor has been shifted to the industrial sector. Disguised unemployment previously faced by the agricultural sector is now the problem of industrial sector. Shortage of labor in agricultural sector has led to shortage of food supply and raw materials in the economy.

    The Harris Todaro Model of Migration
    The basic assumption of this model is high expected income in the urban areas than the rural areas. Equilibrium according to this model is reached when expected wage in urban areas is equal to the marginal product of an agricultural worker. It also has the assumption that unemployment is nonexistent in the rural agricultural sector and that rural agricultural products and subsequent market is perfectly competitive which means that agricultural rural wage is equal to agricultural marginal productivity. In equilibrium, rural-urban migration rate is zero since expected rural income equals expected urban income, which is leading to positive unemployment in the urban sector. Expected urban wage rate is equal to urbanwageXemployment rate. Rural urban migration will increase if urban wages increase in the urban sector, increasing the expected urban income and agricultural productivity also decreases, decreasing marginal productivity and wages in the agricultural sector therefore decreasing the expected rural income. This is nothing different to the current Nigerian economy. The expected income in urban areas has caused total neglect to the rural agricultural sector. The rural-urban migration is only rational if equilibrium is achieved, (where expected real wage in urban areas equals marginal product of an agricultural worker). But in the real sense, rural-urban migration is as a result of increase in urban wages in the urban sector which has caused a decrease in expected wages in rural sector.
    The neglect to rural agricultural sector caused by rural-urban migration has brought about: shortage of food supply and raw materials, overpopulation and unnecessary competition in the urban sector leading to high crime rates, and a large number of people chasing too few jobs.
    This brings an economy back to a state of inadequate development as is seen in Nigeria today.

  40. First of all, I think it’s best to not forget to mention that the Lewis Fei Ranis model came into display only after John Fei and Gustav Ranis decided to work together using Williams growth theory and adding their ideals. This theory also known as the surplus labour theory is a dual economic growth model as it takes into consideration the importance of the Agricultural sector in industrial sector of the Economy. That is to say that the agricultural sector of an economy is as important as the industrial sector because both compliments each other and helps to create a balanced growth and development in the nation.
    This model have three stages which when the developing economy have attained it, can be said to have reached the stage of self sustained economic growth after it moved from the stagnation stage. Under these stages includes;
    The growth surplus generated from both sectors, the agricultural and the industrial sector. The Nature of the industry’s technical progress and it’sassociated bias and the general growth rate of the population because that’s only when you can say that a nation is growing or developing when there is a significant sign in the third mentioned especially.
    This model is of the assumptions THAT; Both Agricultural and Industrial growth are important. That both needs to be balanced and finally, that until the rate at which labour is shifted from agricultural to industrial is greater than the rate of the population will the economy be able to lift itself.
    In the under developed countries there’s always much labour but less natural resources and there’s higher birthrate thus, the issues of overpopulation and high rate of unemployment in these underdeveloped countries. There agricultural sector is observed to always be stagnant just as in the case of Nigeria since the so called industrialization started and her main export have become oil.
    The Harris Todaro of 1970 have their focus on migration and it’s assumptions is on returns and loss because as one migrates from the rural towns to the urban city in search of better paying job he can end up becoming unemployed after he already lost the not good rural job and in the end their will be no equal returns from the marginal rural and the perfect urban job and that the urban formal wages are fixed and higher than the rural agricultural wages with nothing different just the location and formality of job.
    Using Nigeria as an example, I would say that the best growth model for us to practice is the Lewis Fei Ranis Model because unlike the Single structured Harrod do mar model which has no consideration for poor nations capital and the Harris Todaro model which is too focused on how the industrial and agricultural sectors are not balanced as he illustrated with their age gaps and have no other solution to solving that problem.
    Lewis Fei Ranis did solve the problem, starting from their assumptions to their observations of the situations these under developed countries are into. Okay, looking at Nigeria, a country well vast in the terms of land and which once was very rich and strong because of their own labour and it’surpluses this I say as regards to the past when Nigeria pays huge attention on their agricultural sector, there were less crimes then, more productivity and efficiency in distribution even though agriculture served as her main exports yet she flourished compared to the late 80s when she quickly embraced the industrial revolution and did not pay attention to agricultural sector again. If one should take a look around in Nigeria now, only failures of mismanagement of that agricultural sector can be seen as there’sboth hunger and strife in the nation.
    Now if Nigeria should center it’s policies in considering the Lewis Fei Ranis model of economic growth, she will become very self sufficient once again. In the end I will not suggest or recommend the Harod Do mar model for any developing country because it is another form of disguised imperialism, this can be seen from this aspect that when only one sector of the economy is booming and the majority of the population are still living in abject poverty that such a nation still is stagnant now the question is who benefits from this model if the developing worlds do not rather becomes slaves under it’ practice?

  41. Avatar EZEH JUDE OBIOMA says:

    NAME: EZEH JUDE OBIOMA
    REG. NO. 2017/249504
    DEPARTMENT: ECONOMICS
    EMAIL: judeobioma07@gmail.com

    HARRIS – TODARO MODEL OF MIGRATION
    INTRODUCTION
    The Harris-Todaro model is an economic model developed in 1970 which is being used in development economics and welfare economics in analysing some of the issues of rural-urban migration and unemployment. The key contribution of this model to the field of development economics is by making the migration process a rational choice based on expected earnings, that is, labour migration is as a result of rural-urban differences in average expected wages. Here, the minimum urban wage is substantially higher than the rural wage. Also, if additional employment opportunities are created in the urban sector at the minimum wage, the expected wage shall rise and rural-urban migration on the other hand shall be induced resulting to increasing levels of urban employment.

    BASIC ASSUMPTIONS OF THE MODEL
    The Harris-Todaro model is based on the following assumptions;
    There are two sectors in the economy; the rural or agricultural sector (A) and the urban or manufacturing sector (M).
    Migration is primarily an economic decision: Workers rationally compare the expected income to current income to make decision on migration.
    There is no unemployment in the rural sector and it is perfectly competitive such that wage is equal to marginal product
    The model operates in the short run

    MAIN ARGUMENTS OF THE MODEL
    The Harris-Todaro (1970) elaborated the basic two sector model of rural-urban labour migration. It takes most of Lewis model’s assumptions as given, such as the rural sector being characterised by subsistence agriculture, and the urban sector being characterised by modernised industries. However, the Harris-Todaro model takes a standard two-sector model and imposes a higher wage in the urban sector which is higher than equilibrium clearing, while wage in the agriculture is flexible. These developing countries are lack good social safety nets such as welfare benefits, unemployment benefits, and old age security. If the migrants were unable to find a job in the urban formal sector, which is the modern industrial sector, they would be forced to work in the informal sector to sustain their lives. The informal sector is very primitive; work in this sector is labour intensive with little or no capital endowment.
    The equilibrium condition of the Harris-Todaro model can be described as the wage in rural (agricultural) sector must be equal to the expected wage in the urban sector. The model in its most basic form ignores disutility from not being at home farm, or cost of mobility, but these omissions do not change the essence of the model, the only implication of this is a downward shift of the urban sector’s expected returns. This equilibrium can be defined as,
    Wa = (Lf/Lf+Li)Wf + (Li/Lf+Li)Wi
    Where;
    Wa denote the wage in rural (agricultural) sector
    Wf denote the wage in urban formal (industry) sector
    Wi denote the wage in urban informal sector
    Lf denote the number of workers in the urban formal sector
    Li denote the number of workers in the urban informal sector
    The left hand side of the equation is simply the agricultural wage. The right hand side, Lf+Li which is the formal sector labour force plus informal sector labour force. Combining these will give the entire labour force in the urban sector.
    (Lf/Lf+Li) then is simply the ratio of urban workers in the formal sector, in the (H-T) model, this is what the potential migrant sees as the probability of finding a job in the formal sector.
    Similarly, (Li/Lf+Li) is what the potential migrant sees as the probability of ending up in the informal sector.
    The probabilities of each sector is then multiplied by that sector’s respective wage, adding the results together yields the right hand side of Harris-Todaro equilibrium, which is the expected wage from moving to the urban sector.
    The Harris-Todaro model in essence is an extension of the Lewis model. It simply endogenizes migration decision along with the introduction of a second urban sector. It does not change from the Lewis model in that the fundamental driving force of growth is technological growth.

    CONCLUSION
    Despite the aforementioned weaknesses of the Harris-Todaro model, the model is said to be more realistic than the other dual economy models because it tries to tackle the problem of rural-urban migration that actually exists in LDCs. We consider one of the assumptions of the model that workers are risk-neutral when in reality, most people are risk-averse. However, the model can be modified to incorporate this. In a risk-averse version of the Todaro Model, less migration occurs, causing the agricultural sector to increase which invariably increases the productivity of the rural sector and improvement on the economic growth. The level of risk-aversion is reflected in the difference between the informal sector wage and the formal sector wage.

    APPLYING THE MODEL TO NIGERIA ECONOMY
    For the fact that Nigeria is a developing country and the economy being structured into rural and urban sectors, hence the Harris-Todaro model of migration can be successfully applied to the Nigeria economy. Since the beginning of 1980s, the economic position has worsened seriously. The per-capita income fall considerably and wage employment has declined (NISER report, 1993).
    In recent times, due to persistent underdevelopment, there has been a noticeable high level of rural-urban migration in search of better standards of living and bigger opportunities for meaningful economic and social activities. This is dysfunctional not only to rural development but retards the overall national development.
    In view of the foregoing, various Nigeria governments in the past have initiated rural development programmes targeted at the rural sector. Some of these programmes include;
    National Accelerated Food Production Programme (NAFPP)
    Agricultural Credit Guarantee Scheme (ACGS)
    National Directorate of Employment (NDE)
    National Poverty Eradication Programme (NAPEP)
    With the effective implementation of these programmes by government, rural-urban migration can be curtailed, thereby increasing the productivity of the rural (agricultural) sector and the overall development of the economy.

    LEWIS-FEI-RANIS MODEL OF SURPLUS LABOUR
    INTRODUCTION
    Lewis model of surplus labour was developed in 1954 and later modified by Fei-Ranis in 1961, 1964 and 1997 respectively. Lewis argued that an economy transits from the first stage, labour-surplus to the second, labour-scarce stage of development. Ranis and Fei (1961) later expanded the Lewis theory and defined three “phases” of dualistic economic development by sub-dividing the first stage in the Lewis model into two phases. Therefore, the second labour-scarce stage of the Lewis model becomes the phase three of the Ranis-Fei model. The three phases are illustrated with the turning points below;
    The breakout point leads to phase one growth with exceeding agricultural labour.
    The shortage point leads to phase two growths with false appearance of agricultural unemployment.
    The commercialisation point leads to phase three of self-sustaining economic growth with the commercialisation of the agricultural sector.
    BASIC ASSUMPTIONS OF THE LEWIS-FEI-RANIS MODEL
    The basic assumptions of the model are as follows;
    There is rural (agricultural) and urban (manufacturing) sector in an economy.
    A developing economy has a surplus of unproductive labour in the agricultural sector.
    The wages in the manufacturing sector are more or less fixed.
    Higher wages are being offered in the manufacturing sector which attract workers.
    An advanced manufacturing sector means an economy has moved from a traditional to an industrialized one.

    THE MAIN ARGUMENTS OF THE MODEL
    The Lewis-Fei-Ranis model is based on structural change theory which explains the mechanism of changing structure of underdeveloped economic from subsistence agriculture to more modern and more urbanized. The movement of labour from traditional to modern sector bring expansion in both output and employment based on the following;
    A. Rate of industrial investment and capital accumulation which ultimately depends on the level of profit. Lewis assumes that all profits are reinvested.
    B. Wage difference between the rural and urban sector.
    The model is focused on the following points;
    There is an abundance of labour in under developed countries and shortage of natural resources.
    The population growth rate is very high which results in mass unemployment in the economy.
    There is a dynamic industrial sector in the economy.
    There are certain non-agrarian sectors in the economy where there is reduced use of capital.
    The major share of population is engaged in agriculture. But agriculture sector is stagnant. Hence, the marginal productivity of labour is zero and negative in agricultural sector. The situation where MPL-0, labour can be transferred to industrial sector without any loss in agricultural output. The real wages in industrial sector remains fixed and it is equal to the initial level of real income in agricultural sector. Such wages are given the name of institutional wages.
    CONCLUSION
    The Lewis-Fei-Ranis model maintained that in developing countries, surplus labour in the agricultural sector is sufficiently large to give an unlimited supply of labour for industrial expansion, thus labour migration from the agricultural sector to the industrial sector induces more significant structural change in these countries than in the developed countries. The model therefore focuses on the capital accumulation in the modern industrial sector so as to absorb this excess labour from the subsistence agricultural sector.

    RELATING THE MODEL TO NIGERIA ECONOMY
    As Nigeria being a developing country with a dual economic structure (the rural and urban sectors), and having a massive labour supply from the rural sector to the urban sector, it is therefore pertinent that the government should implement policies that will aid investment in both sectors so that the economy will maintain a balanced growth pattern. This is also a crucial part of the Lewis-Fei-Ranis model to support economic development.

  42. Izuogu Chioma Sylverline2017/244598
    Education Economics

    Lewis-Fei-Ranis Model (Surplus labour theory)

    The theory of unlimited supplies of labour by Professor W. Arthur Lewis is a systematic classical theory of economic development which is based on the existence of two sectors in the economy of developing countries- the modern and the traditional sectors. The modern sector is small and uses considerable amounts of capital, while the traditional sector is the large labour surplus rural agricultural sector, with little amount of capital.
    The argument is that poor countries have two sectors (the rural agricultural or subsistence sector and the modern industrial or capitalist sector) and that the wage level in the sector with unlimited supply of labour (rural sector) is at its subsistence. In addition to that, it is also believed that the marginal productivity of this surplus labour is zero and as such the economy is backward. Lewis argues that if this surplus labour can be transferred to the sector that has few labour supplies (the modern sector), the productivity level in the agricultural sector would not experience any noticeable reduction but rather, economic development would take place because labour would be put to good use bringing about a chain of productive reactions. Arthur in his article on “Economic Development with unlimited supplies of labour” has a model called the dual sector- model enumerated in it and the model was named in Lewis’s honor. To understand the theory better, the underlining assumptions of the model will be discussed in the next section.

    The Assumptions of the Model
    The following are the assumptions of the model:
    (i) Existence of dual Economy: There exist a two sector economy characterised by a traditional, over-populated agricultural rural subsistence sector with zero Marginal Productivity of Labour(MPL), and the ‘capitalist’ sector which is the high productive modern industrial sector represented by the manufacturing, mining activities.
    (ii) Elasticity of Labour: According to Arthur, the supply of labour is perfectly elastic. In other words, the supply of labour is greater than demand for labour in the agricultural sector and therefore the capitalist sector can have as much labour as it requires and will continue to absorb this surplus from the agricultural sector until there is no longer surplus labour left.
    (iii) Reproducible Capital: The subsistence sector does not make use of ‘Reproducible Capital’, while the modern sector uses the produced means of capital. As a result of the non usage of reproducible capital in the subsistence sector, output per head is lower than in the capitalist sector.
    (iv) The model also assumes that the wages in the manufacturing sector are higher than those of the subsistence sector and are also more or less fixed.
    (v) Entrepreneurs in the manufacturing sector make profit because they charge a price above the fixed wage rate
    (vi) There is the willingness of the capitalist to reinvest the profit in
    the business and this is done in the form of fixed capital. The main people/sources from which workers would be coming for employment at the subsistence wage as economic development proceeds are “the farmers, the casual workers, small scale informal sector participants, women in the household, and population growth.

    Basic Thesis of the Lewis Model
    The Lewis model is a classical type model based on the assumption of a dual sector economy which are the capitalist sector and the subsistence sector. The subsistence sector is that part of economy which does not use reproducible capital and therefore, the output per head is lower than in the capitalist sector. Also there is perfectly elastic supply of labour at the subsistence sector in many underdeveloped countries but not in themodern sector. Lewis is of the opinion that the industrial and advanced modern sector can be developed and made to boost the entire economy, this according to him, can be done by transferring the surplus labour from traditional sector to the modern sector. From this surplus labour now in the modern sector, new industries will spring up and existing ones would grow. However, the capitalist sector requires skilled labour and this stands as a stumbling block to the development process as the surplus labour from the subsistence sector are mostly unskilled. This problem can be eliminated by providing training facilities to unskilled workers. So in essence, the absence of skilled labour in this sector is a temporary problem which can be solved through training.
    Lewis says that the wages in industrial sector remain slightly higher than that of the agricultural sector. Consequently, labour will be attracted to the modern sector because of the higher wage incentives and as a result of this, the capitalists will earn surplus from the increase in productivity brought about by the surplus labour transferred. Such surplus will be re-invested in the modern sector leading thereby to further increase in the productivity of this sector. In this way, the surplus labour or the labour which were prey to disguised unemployment will get to be employed into productive activities. Thus both the labour transfer and modern sector employment growth are brought about by output expansion in the modern sector. The speed with which this expansion occurs is determined by the rate of industrial investment and capital accumulation in the modern sector. Here is a diagrammatical explanation of Lewis Model

    QUANTITY OF LABOUR
    Diagramatic Representation of Lewis Model
    In this diagram, the horizontal axis (x) represents the quantity of labour employed, while the vertical axis (y) represents the wage rate/Marginal Productivity of Labour. Also in the diagram, OS represent average subsistence wage in the agricultural sector, and OA the capitalist wage, the supply of labour is unlimited and this is shown by the horizontal supply curves of labour AW and Sw. The analysis goes thus: The marginal productivity of labour in the industry is M1P1, with OL1 labour employed , OAKL1 wage rate is paid from the total product of OM1KL1, giving the capitalist a profit of AM1K. With the reinvestment of this profit, the marginal productivity of labour of labour increases from M2P2 and then further reinvestment brings it to M3P3 and so on. As the capitalist continues to reinvestment his profit, his surplus continues to grow. Overtime, as the transition continues and the capitalist continues to reinvest surplus derived from the use of surplus labour from the subsistence sector, the capital stock increases, the marginal productivity of workers in the manufacturing sectors will be driven up by capital formation. Capital formation resulting from this increase in investment leads to quicker utilisation of surplus labour. As more labour is supplied, the marginal productivity falls, and in the long run, the wage rates of the agricultural and manufacturing sectors will equalise because as workers leave the agricultural sector for the manufacturing sector, they increase marginal productivity and wages in agricultural sector while reducing them in manufacturing. The process of modern self sustaining growth and employment expansion will continue till all the surplus rural labour is absorbed in the new industrial sector. Thereafter, additional workers can be withdrawn from agricultural sector only at a higher cost of lost of food production because this will decrease the labour to land ratios. In this way, the MPL will no more be zero and the labour supply curve will become positively sloped along with the growth of modern sector.

    CRITICISMS OF THE THEORY
    Despite the theory’s huge success in identifying the two key sectors in the developing countries and stating how growth can be achieved in these usually over populated countries, most of the theory’s assumptions do not fit into the institutional and economic realities of the Developing countries and as such can be said to be irrelevant to these countries.
    Below are some of the flaws of the theory.
    (i) The industrial real wage continues to rise and is not constant as Lewis assumes
    (ii) There is the likelihood of the capitalist reinvesting in labour saving techniques like investments in machineries and this would reduce the amount of labour needed causing urban unemployment.
    (iii) Lewis ignored the balanced growth between agricultural sector and industrial sector. But we know that there, exists a linkage between agricultural growth and industrial expansion in poor countries. If a part of profits made by capitalists is not devoted to agricultural sector, the process of industrialisation would be jeopardised (perhaps, due to reduced supply of raw material).
    (iv) Lewis model underestimates the full impact on the poor economy of a rapidly growing population, i.e., its effects on the capitalist profit share, wage rates and overall employment opportunities.
    (vi) Lewis has ignored the role which the leakages can play in the economy. As Lewis assumed that all increases in profits are
    diverted into savings. It means that the savings of producers is equal to 1. But, this is unrealistic as the increase in profits may accompany an increase in consumption.
    (vii) Lewis assumed that the transfer of unskilled labour from the subsistence agricultural sector to the industrial sector is regarded as almost smooth and costless. The model however fails to take account of the cost of educating and training rural workers for urban employment and also, there is also other indirect cost associated with rural-urban migration. Amongst these are: a lack of sufficient housing, leading to the development of squatter townships or shanty towns, pressure on social infrastructure such as schools and hospitals, increases in disease due to a lack of clean water and sanitation.

    CONCLUSION
    Arthur Lewis theory of economic development is a structural change theory which explains the mechanism of changing structure of underdeveloped economies from the subsistence rural sector to a modern urbanised one. According to the theory, the economies of most developing countries are made up of two key sectors, the subsistence agricultural sector and the modern capitalist sector. Lewis is of the opinion that economic development occurs when the capitalist gets labour from the unlimited supply of labour in the subsistence sector, which it uses to set up new industries and also grow existing ones. The capitalist gets profit from the activities of the surplus labour and according to Lewis, the capitalist reinvests this profits and this sets off a growth process that continues until there is no longer surplus labour to be absorbed. The theory was criticised by some scholars and one major criticism raised is that the transition from rural sector to urban sector does not come without cost like the theory would like us to.
    However, despite the criticisms, the theory still helps to point us to the reality of the existence of the overpopulated subsistence agricultural sector and a modern capitalist sector in most underdeveloped countries. The way we go about developing these sectors to achieve a balanced growth in the economy (which the theory was criticised for not doing) was latter addressed by Fei-Ranis.

    Harris-Todaro Model of migration.

    The Harrod- Domar models attempt to analyse the requirement of a steady growth in the advanced economies. They are interested in discovering the rate of income growth necessary for a smooth working of an economy and as such, believed that investment plays a key role in the process of economic growth. Investment according to the models is divided into two, based on its ability to:
    (a) create income, which is the demand effect of investment and
    (b) augmenting the productive capacity of the economy by increasing capital stock, this is the supply effect of investment. Expansion of net investment would result in increase in real income and output in the economy and if this expansion is stopped, income and employment will fall, thereby moving the economy off the equilibrium path of steady growth. For net investment to grow however, the real income is required to also grow continuously at a rate sufficient enough to ensure capacity use of growing stock of capital. The real income growth rate required here is called the full capacity growth rate or the warranted rate of growth.

    Assumptions of the Model
    The following are the assumptions of the models:
    1. There is an initial full employment equilibrium level of income
    2. There is an absence of government interference and the models operate in a closed economy which has no foreign trade
    3. The average propensity to save is equal to the marginal propensity to save and marginal propensity to save remains constant for the period
    4. There are no changes in interest rates
    5. There is a fixed proportion of capital and labour in the productive
    process
    6. The general price level is constant i.e. nominal and real incomes are the same
    7. There is no separation between fixed and circulating capital. They are both lumped together under capital
    8. There is no depreciation of capital goods, which are assumed to possess infinite life
    9. The above are the assumptions of the Model. Let us now examine each of the models independently.

    The Domar Model
    Domar builds his model based on a self asked question which goes thus “since investment generates income on the one hand and increases productive capacity on the other, at what rate should investment increase in order to make the increase in income equal to the increase in productive capacity, so that full employment is maintained?” In answering the question, Domar forged a link between aggregate supply and aggregate demand through investment. On the supply side, starting from the increase in productive capacity, annual investment rate is taken to be (I), and the annual productive capacity per dollar of newly created capital on the average equals to (s) and this represents the ratio of increase in real income or output to an increase in capital or is the reciprocal of the accelerator or the marginal capital-output ratio. So the productive capacity of I dollar invested will be I.s dollars per day. However, some new investment will be at the expense of the old because the new investment will bring about a competition, for available factors of production and competition in the labour market which brings about a reduction in the old plants output and the annual increase in the economy i.e. the productive capacity of the economy will be less than I.s. This can be represented as Iσ, where σ (sigma) stands for the net potential social average productivity of investment (=∆Y/I). Note that Iσ is less than I.s, and it is the total net potential increase in output of the economy known as the sigma effect of the supply side of the economic system. To explain the demand side, the Keynesian multiplier was used. Here, the annual increase in income is denoted by ∆Y, increase in investment as ∆I and the propensity to save α (alpha) is (∆S/∆Y). Increase in income will therefore be 1 which is also the multiplier effect 1/α. 1-MPC
    Note that 1-MPC = MPS. Where MPC and MPS (α) are marginal propensity to consume and marginal propensity to save respectively. Increase in income would be equals to the multiplier (1/ α) multiplied by the increase in investment, which is ∆Y =∆I. I/α. …………………………………. (1)
    For full employment equilibrium level of income to be maintained aggregate demand should be equal to aggregate supply which will bring the equation to, ∆I.1/α = σ…………………………………………………………… (2)
    Equation (2) is the fundamental equation of the model.
    To solve the equation, divide the two sides by I and multiply by σ, we would have, ∆I/I= α σ……………………………………………………………..… (3)
    Equation (3) shows that to maintain full employment, the growth rate of net autonomous investment (∆I/I) must be equal to the product of MPS and capital productivity (α σ).This is the rate at which investment must grow to ensure the usage of potential capacity in order to maintain a steady growth rate of the economy at full employment.

    The Harrod Model
    The Harrod model like that of Domar, examines the possibility of steady growth. Harrod made efforts to show how economy can havegrowth path and if by any chance this steady growth is interrupted, the economy falls into disequilibrium and cumulative forces prolong the divergence from the ‘golden path’ which eventually leads to either secular deflation or secular inflation, showing that the process of steady growth is never smooth. Harrod developed his model on three basic concepts of rates of growth, and they are
    (1) actual growth, (2) warranted growth and (3) natural growth.
    (1) The actual rate of growth which is given as G, is determined by the saving ratio indicated by s and the incremental capital-output ratio indicated by C. It shows a short run cyclical variations in the rate of growth;
    (2) Warranted rate of growth represented by Gw is taken to be the full capacity growth rate of income in an economy. It is the rate of growth required for the full utilisation of a growing stock of capital. The warranted growth rate can therefore be said to be the growth rate at which all saving is absorbed into investment. The demand at this growth rate is high enough for businessmen to sell what they have produced. And
    (3) the natural growth rate represented by (Gn), is the rate of advancement which the increase in population and technological improvements allow. This growth rate depends on variables like technology, population and natural resources. The natural growth rate is therefore the rate required to maintain full employment. If the labour force grows at 3 percent per year, then to maintain full employment, the economy’s annual growth rate must be 3 percent (assuming no growth in productivity). According to Harrod, Warranted growth rate Gw is a self-sustaining rate of growth and if the economy continues to grow at this rate, it will follow the equilibrium path. He asserted that on a long run basis, the actual growth rate (G) should be equal to warranted growth rate (Gw). For full employment growth realisation, actual capital goods (C) must equal required capital goods C(r) if not, the economy would be in disequilibrium. Equation for full employment growth Gn =Gw= G. The full employment equilibrium is difficult to achieve and any divergent would lead to disequilibrium either in form of secular stagnation or inflationary conditions in an economy. Harrod model presents a situation where savings is a virtue when there is inflationary gap and a vice when there is deflationary gap in the economy. This model therefore would enable policy makers in an advanced country to use savings adjustments to correct inflation or deflation in the economy

    Criticisms of the Models
    Some of the criticisms of the models are as follows:
    Harrod -Domar model was formulated primarily to protect the developed countries from chronic unemployment, and was not meant for developing countries.
    Most less developed countries lack sound financial system and therefore, increased saving by households does not necessarily mean there will be greater funds available for firms to borrow for invest.
    Improving capital/output ratio is difficult to achieve in developing countries this is often due to a poorl educated work force. New capital is often inefficiently used by labour.
    Increasing the savings ratio in developing countries is not always easy.
    Majority of these developing countries have low marginal propensities to save and low income.
    Research and Development needed to improve the capital/output ratio is often underfunded in developing countries.The model fails to address the nature of unemployment which exists in
    different countries.
    In developed countries, the unemployment is ‘cyclical unemployment’, which is due to insufficient effective demand; whereas in developing countries, there is high level of ‘disguised unemployment’ in the urban informal sector and rural agricultural sector.
    Finally, the model failed to recognise the effect of government programs on economic growth.

    CONCLUSION
    Harrod-Domar models are models developed independently by Sir Roy Harrod and Evsey Domar. The models explain economy growth rate in terms of level of saving and productivity of capital. The Harrod -Domar growth model is based on the experiences of advanced capitalist countries and is interested in knowing the rate of income growth that would bring about smooth and sustained growth of the economy. The model has it that growth depends on the quantity of labour and capital, noting that more investment leads to capital accumulation which brings about the growth in an economy. The model’s implication for the less developed country is that because labour is in excess supply and physical capital is not, the LDC’s do not have sufficient average incomes to enable high rates of saving which the model believes is necessary for the accumulation of capital stock. Therefore these countries have low rate of investment caused by low savings rate. For economic growth to be achieved in these countries policies geared towards increasing investment through increased savings should be pursued and also the savings can be used by policy makers to correct inflation or deflation as the case may be.

  43. Avatar Onah promise Chidiebere says:

    Kalu Emmanuel Chinemerem
    2017/249356
    Economics philosophy

    INTRODUCTION
    The surplus model though widely accepted and praised, has been attacked severely after its emergence in 1954. Yet it is hard to conceive development without growth, though there can be growth without development. The model is unclear, and it could not move further, as a result of this. This has prevented its use in empirical research. However, it was important despite it being unclear, as it was the first work ever on economic development, and other works have built on its existence. It was the first time labour in an economy was looked into. It is further accepted generally as ‘the’ contribution for which Lewis was awarded a Noble prize and with this award, he successfully revolutionized the contemporary development thinking (Ranis, 2004).
    The Fei–Ranis model of economic growth is a dualism model in developmental economicsor welfare economics that has been develop by Johnc.h.fei and Gaustav Ranis and can be understood as an extension of the Lewis Model. It is also known as the Surplus Labor model. It recognizes the presence of a dual economy comprising both the modern and the primitive sector and takes the economic situation of unemployment and underemployment of resources into account, unlike many other growth models that consider underdeveloped countries to be homogenous in nature.
    According to this theory, the primitive sector consists of the existing agricultural sector in the economy, and the modern sector is the rapidly emerging but small industrial sector. Both the sectors co-exist in the economy, wherein lies the crux of the development problem. Development can be brought about only by a complete shift in the focal point of progress from the agricultural to the industrial economy, such that there is augmentation of industrial output. This is done by transfer of labor from the agricultural sector to the industrial one, showing that underdeveloped countries do not suffer from constraints of labor supply. At the same time, growth in the agricultural sector must not be negligible and its output should be sufficient to support the whole economy with food and raw materials. Like in the Harrod-Domar model, saving and investment become the driving forces when it comes to economic development of underdeveloped countries, in this model both primary and secondary sector are both driving force of economic development in developing countries.

    HISTORY OF SUPLUS LABOUR THEORY
    The Fei–Ranis model of economic growth is a dualism model in developmental economics or welfare economics that has been developed by John C. H. Fei and Gustav Ranis and can be understood as an extension of the Lewis model. It is also known as the Surplus Labor model.Itrecognizes the presence of a dual economy comprising both the modern and the primitive sector and takes the economic situation of unemployment and underemployment of resources into account, unlike many other growth models that consider underdeveloped countries to be homogenous in nature. According to this theory, the primitive sector consists of the existing agricultural sector in the economy, and the modern sector is the rapidly emerging but small industrial sector.Both the sectors co-exist in the economy, wherein lies the crux of the development problem. Development can be brought about only by a complete shift in the focal point of progress from the agricultural to the industrial economy, such that there is augmentation of industrial output. This is done by transfer of labor from the agricultural sector to the industrial one, showing that underdeveloped countries do not suffer from constraints of labor supply. At the same time, growth in the agricultural sector must not be negligible and its output should be sufficient to support the whole economy with food and raw materials. Like in the Harrod–Domar model, saving and investment become the driving forces when it comes to economic development of underdeveloped countries.

    COMPARISON WITH OTHER MODELS
    Fei and Ranis emphasized strongly on the industry-agriculture interdependency and said that a robust connectivity between the two would encourage and speedup development. If agricultural laborers look for industrial employment, and industrialists employ more workers by use of larger capital good stock and labor-intensive technology, this connectivity can work between the industrial and agricultural sector. Also, if the surplus owner invests in that section of industrial sector that is close to soil and is in known surroundings, he will most probably choose that productivity out of which future savings can be channelized. They took the example of Japan’s dualistic economy in the 19th century and said that connectivity between the two sectors of Japan was heightened due to the presence of a decentralized rural industry which was often linked to urban production. According to them, economic progress is achieved in dualistic economies of underdeveloped countries through the work of a small number of entrepreneurs who have access to land and decision-making powers and use industrial capital and consumer goods for agricultural practices.

    THE ASSUMPTIONS
    The first assumption of the model was that the modern sector employment creation and labour transfer rate is proportional to the rate of capital accumulation in the modern sector. Marginal productivity of labour, henceforth MPL, is positive in the modern sector. Labour could be transferred from the agricultural sector to the modern sector at zero cost, yielding net profits the industry leading to a higher rate of investment: countries can thus develop rapidly (Todaro and Smith, 2009 ).
    The second was the notion that surplus labour exists in the rural areas, while the urban areas were said to have full employment. This, Todaro said, was because there was over-population in the rural area where MPL is zero. Actual output of labour was used to determine their wages (Todaro and Smith, 2009).
    ventions.
    There was an assumption of diminishing returns in the modern sector, mostly in the industrial areas. But, there is evidence that there is a prevalent increase in returns (Todaro and Smith, 2009 ).
    Finally, there was an unreal assumption that if a modern labour sector was competitive, it guaranteed a continuous existence of real urban wages to a point that surplus labour is exhausted in the rural sector (Todaro and Smith, 2009).

    CRITICISM
    Lewis’ central problem was identifying the major causes of growth and their constraints. According to Lewis, the most important growth constraint in output was the lack of productive capital accumulation. The existing dominant constraint to capital accumulation foe Lewis was the savings rate as, seen by the classical economists (Hunt, 1989). If the savings rate is so small, then enough capital is not saved.
    A major criticism of the Lewis model concerns his notion of “surplus labour”. It was interpreted often as zero marginal productivity of agricultural labour. This situation is highly unlikely and was prone to vigorous attack by T. Schultz (1964). He did this by making available; evidence introduced from India which showed that withdrawal of large agricultural population did not result to agricultural output declining (Ranis, 2004).
    According to Lewis, surplus labour was thought of in terms of human beings rather than man-hours, thereby defining his surplus labour happening at the given wage rate.
    CONCLUSION
    The Lewis model, though widely accepted and praised, has been attacked severely after its emergence in 1954. Yet it is hard to conceive development without growth, though there can be growth without development. The model is unclear, and it could not move further, as a result of this. This has prevented its use in empirical research. However, it was important despite it being unclear, as it was the first work ever on economic development, and other works have built on its existence. It was the first time labour in an economy was looked into. It is further accepted generally as ‘the’ contribution for which Lewis was awarded a Noble prize and with this award, he successfully revolutionized the contemporary development thinking (Ranis, 2004).

  44. Avatar Onah promise Chidiebere says:

    Onah promise Chidiebere
    2017/249408
    Oonahpromise1@gmail.com

    Economics/philosophy
    REVIEW OF THE HARRIS-TODARO MODEL
    The Harris-Todaro Model of Labor Migration in the Literature of Development Economics It has long been realized that in order for an economy to develop or grow, a large amount of labor has to be transferred from the traditional (or backward) agricultural sector in rural areas, where the productivity of labor is low (or negligible, or zero, or even negative) to the modern manufacturing sector where the productivity of labor is higher and rising due to capital accumulation in that sector. It should not be surprising, therefore, that, in the literature of development economics, dualistic models gained popularity over the single-commodity or single-sector theories in the 1950’s. A typical dualistic model in development economics contains two sectors, a traditional or agricultural sector in the rural area and a modern or manufacturing sector in the urban area. The most familiar single-sector model is the growth theory of Harrod-Domar (Harrod 1939 and 1948, Domar 1946). The most representative and influential dualistic framework is that of Lewis (1954). The ideas of surplus labor, subsistence wages, and turning points in the development of a dualistic economy in Lewis (1954) were later rigorously and diagrammatically formalized by Ranis and Fei (1961). Ranis and Fei also showed how agricultural surplus could lead to the growth of industries. The production relations of a dual economy, according to Jorgenson (1961), was characterized by asymmetry. More precisely, he assumed that output in the agricultural sector was a function of land and labor alone (there is no capital accumulation in this sector), and was characterized by diminishing return to scale. On the other hand, the output of the urban sector depended on capital and labor alone (no land was required), and the production function displayed constant return to scale. Since the amount of land and capital in the economy was assumed fixed, the only problem was to allocate labor between the two sectors
    The common features of the dualistic theories discussed so far and some other models of that nature are that 1). there is no unemployment in the modern sector, and 2). the sectoral wage differential is assumed fixed or proportional to the wage level in the urban sector. These models were later labeled as “orthodox” by Corden and Findlay (1971). The unorthodox thinking was first and independently introduced by several economists, notably among whom were Michael Todaro (1969) and John Harris (Harris and Todaro 1970). The essence of the new thinking, which has to be reminiscent of the Keynesian revolution, is that there can be an equilibrium with the existence of a chronic large amount of urban unemployment. By the end of the 1960s, the world had seen the rapid growth of urban areas in the developing countries. “From Dares Salaam to Karachi to Caracas, from land surplus to labor
    surplus to capital surplus countries, one hears of the ever￾increasing flow of rural migrants into urban area and of the inability of the urban economy to provide permanent jobs for even a majority of these workers” (Todaro 1969). For instance, between 1950 and 1960, urban areas in Africa grew by 69%, in Latin America by 67%, and in Asia by 51%, while rural areas grew by only 20% over the same period (Fields 1975).
    The most important factor that causes urban population explosion has been the migration of labor from the rural areas into the cities throughout the less developed world. Population growth also contributes to this phenomenon but in a much less scale, since it rarely exceeds 3%. In the context of a dualistic model, the rural sector is discharging labor too rapidly and the urban sector is hiring labor too slowly because it is too highly capital intensive (Lewis 1965). As a result, the “urban manifestations of the employment problem” becomes the most visible feature of poverty and underdevelopment of the Third World countries (Lubell 1988). It has been pointed out by many that economic considerations, or urban-rural wage differentials, play an important role in determining the extent of labor migration. The higher than competitive urban wage is due to a combination of trade-union pressure, nationalistic government pressure on foreign enterprises, and the new social conscience of big entrepreneurs (Lewis 1965). Citing the case of increasing gap between urban and agricultural earnings in Puerto Rico, Reynolds (1965) argues that minimum urban wages are politically determined, i.e., through legislation. Harberger (1971) distinguishes urban wages into the “protected-sector wages” and the “unprotected urban wages.” The former is above the market-clearing level and is believed to be held high by minimum wage laws, by collective bargaining agreements, or by the policy of the hiring company itself. In parts of China, minimum wages have been set up since 1988 by local governments mainly to prevent joint ventures from exploiting their local employees (China Reform Journal 1994). More recent studies show that the problem of urban unemployment is not unique to the less developed countries (LDCs). In 1985, while urban unemployment rates of Botswana and Lesotho were as high as 31.2% and 22.3%, respectively, Ireland, France, and Italy recorded 17.3%, 10.2%, and 10.3%, respectively, higher than some LDCs like India or Pakistan (6.8 and 5.0, respectively) (Turnham 1993). In China, where the term “unemployment” did not exist in the official government documents 10 years ago, among the 400 million workers in the countryside, 120-150 million are labelled as “potentially unemployed,” which has added enormous pressure to the urban economy and will undoubtedly continue to do so. Regionally, the urban unemployment rates are as high as over 20% (Wang 1993). It was the observation of “a curious economic phenomenon” in tropical Africa that led to the pioneering work of Harris and Todaro (Todaro 1969; Harris and Todaro 1970). The phenomenon was the continual and accelerating rural-urban labor migration despite the existence of positive marginal products in agriculture. Todaro’s main contribution is the introduction of the probability of employment as an element in the decisioin making process of a potential migrant. He proposed what he called “a more realistic picture of labor migration in less developed countries.

    Conclusion
    Therefore, migration from rural areas to urban areas will increase if Urban wages (wu) increase in the urban sector (le), increasing the expected urban income.
    Agricultural productivity decreases, lowering marginal product
    INTRODUCTION
    The surplus model though widely accepted and praised, has been attacked severely after its emergence in 1954. Yet it is hard to conceive development without growth, though there can be growth without development. The model is unclear, and it could not move further, as a result of this. This has prevented its use in empirical research. However, it was important despite it being unclear, as it was the first work ever on economic development, and other works have built on its existence. It was the first time labour in an economy was looked into. It is further accepted generally as ‘the’ contribution for which Lewis was awarded a Noble prize and with this award, he successfully revolutionized the contemporary development thinking (Ranis, 2004).
    The Fei–Ranis model of economic growth is a dualism model in developmental economicsor welfare economics that has been develop by Johnc.h.fei and Gaustav Ranis and can be understood as an extension of the Lewis Model. It is also known as the Surplus Labor model. It recognizes the presence of a dual economy comprising both the modern and the primitive sector and takes the economic situation of unemployment and underemployment of resources into account, unlike many other growth models that consider underdeveloped countries to be homogenous in nature.
    According to this theory, the primitive sector consists of the existing agricultural sector in the economy, and the modern sector is the rapidly emerging but small industrial sector. Both the sectors co-exist in the economy, wherein lies the crux of the development problem. Development can be brought about only by a complete shift in the focal point of progress from the agricultural to the industrial economy, such that there is augmentation of industrial output. This is done by transfer of labor from the agricultural sector to the industrial one, showing that underdeveloped countries do not suffer from constraints of labor supply. At the same time, growth in the agricultural sector must not be negligible and its output should be sufficient to support the whole economy with food and raw materials. Like in the Harrod-Domar model, saving and investment become the driving forces when it comes to economic development of underdeveloped countries, in this model both primary and secondary sector are both driving force of economic development in developing countries.

    HISTORY OF SUPLUS LABOUR THEORY
    The Fei–Ranis model of economic growth is a dualism model in developmental economics or welfare economics that has been developed by John C. H. Fei and Gustav Ranis and can be understood as an extension of the Lewis model. It is also known as the Surplus Labor model.Itrecognizes the presence of a dual economy comprising both the modern and the primitive sector and takes the economic situation of unemployment and underemployment of resources into account, unlike many other growth models that consider underdeveloped countries to be homogenous in nature. According to this theory, the primitive sector consists of the existing agricultural sector in the economy, and the modern sector is the rapidly emerging but small industrial sector.Both the sectors co-exist in the economy, wherein lies the crux of the development problem. Development can be brought about only by a complete shift in the focal point of progress from the agricultural to the industrial economy, such that there is augmentation of industrial output. This is done by transfer of labor from the agricultural sector to the industrial one, showing that underdeveloped countries do not suffer from constraints of labor supply. At the same time, growth in the agricultural sector must not be negligible and its output should be sufficient to support the whole economy with food and raw materials. Like in the Harrod–Domar model, saving and investment become the driving forces when it comes to economic development of underdeveloped countries.

    COMPARISON WITH OTHER MODELS
    Fei and Ranis emphasized strongly on the industry-agriculture interdependency and said that a robust connectivity between the two would encourage and speedup development. If agricultural laborers look for industrial employment, and industrialists employ more workers by use of larger capital good stock and labor-intensive technology, this connectivity can work between the industrial and agricultural sector. Also, if the surplus owner invests in that section of industrial sector that is close to soil and is in known surroundings, he will most probably choose that productivity out of which future savings can be channelized. They took the example of Japan’s dualistic economy in the 19th century and said that connectivity between the two sectors of Japan was heightened due to the presence of a decentralized rural industry which was often linked to urban production. According to them, economic progress is achieved in dualistic economies of underdeveloped countries through the work of a small number of entrepreneurs who have access to land and decision-making powers and use industrial capital and consumer goods for agricultural practices.

    THE ASSUMPTIONS
    The first assumption of the model was that the modern sector employment creation and labour transfer rate is proportional to the rate of capital accumulation in the modern sector. Marginal productivity of labour, henceforth MPL, is positive in the modern sector. Labour could be transferred from the agricultural sector to the modern sector at zero cost, yielding net profits the industry leading to a higher rate of investment: countries can thus develop rapidly (Todaro and Smith, 2009 ).
    The second was the notion that surplus labour exists in the rural areas, while the urban areas were said to have full employment. This, Todaro said, was because there was over-population in the rural area where MPL is zero. Actual output of labour was used to determine their wages (Todaro and Smith, 2009).
    ventions.
    There was an assumption of diminishing returns in the modern sector, mostly in the industrial areas. But, there is evidence that there is a prevalent increase in returns (Todaro and Smith, 2009 ).
    Finally, there was an unreal assumption that if a modern labour sector was competitive, it guaranteed a continuous existence of real urban wages to a point that surplus labour is exhausted in the rural sector (Todaro and Smith, 2009).

    CRITICISM
    Lewis’ central problem was identifying the major causes of growth and their constraints. According to Lewis, the most important growth constraint in output was the lack of productive capital accumulation. The existing dominant constraint to capital accumulation foe Lewis was the savings rate as, seen by the classical economists (Hunt, 1989). If the savings rate is so small, then enough capital is not saved.
    A major criticism of the Lewis model concerns his notion of “surplus labour”. It was interpreted often as zero marginal productivity of agricultural labour. This situation is highly unlikely and was prone to vigorous attack by T. Schultz (1964). He did this by making available; evidence introduced from India which showed that withdrawal of large agricultural population did not result to agricultural output declining (Ranis, 2004).
    According to Lewis, surplus labour was thought of in terms of human beings rather than man-hours, thereby defining his surplus labour happening at the given wage rate.
    CONCLUSION
    The Lewis model, though widely accepted and praised, has been attacked severely after its emergence in 1954. Yet it is hard to conceive development without growth, though there can be growth without development. The model is unclear, and it could not move further, as a result of this. This has prevented its use in empirical research. However, it was important despite it being unclear, as it was the first work ever on economic development, and other works have built on its existence. It was the first time labour in an economy was looked into. It is further accepted generally as ‘the’ contribution for which Lewis was awarded a Noble prize and with this award, he successfully revolutionized the contemporary development thinking (Ranis, 2004).

  45. Avatar OBODIKE LOVETH OGADIMMA says:

    Obodike Loveth OGADIMMA
    2017/249537
    obodikeloveth111@gmail.com

    AN ESSAY ON THE SUMMARY OF LEWIS AND FEI RANIS MODEL {SURPLUS LABOR THEORY}

    INTRODUCTION
    William Arthur Lewis, with his most famous published work, Economic Development with Unlimited Supplies of Labour and The Theory of Economic Growth made a great contribution to the theories of economic development. Based on his findings, Ranis and Fei succeeded to extend the initial Lewis model and assessed the changes in the agricultural and industrial labour in more detail. The fei-Ranis model of economic growth is a dualism model in welfare economic that has been developed by JOHN C.H.Fei and Gustav Ranis. It can be understood as an extension of the Lewis model. It is also known as the Surplus Labor model. According to this model, the primitive sector consist of the existing agricultural sector in the economy and the modern sector is the rapidly emerging but small industrial sector .This is to say that it recognizes the presence of a dual economy comprising both the modern and the primitive sector and it takes the economic situation of unemployment and underemployment of resources into account, unlike many other growth models that consider underdeveloped countries to be homogenous in nature .both sectors co-exist in the economy ,wherein lies the crux of the development problem .development can be brought about only by a complete shift in the focal point of progress .
    HISTORY
    Lewis (1954) proposed a seminal theory of dualistic economic development for over-populated and under-developed countries with vast amounts of surplus agricultural labour for which he was later to be awarded the 1979 Nobel Prize in Economics. Economic growth in such an economy can be achieved by rapid capital accumulation in the non-agricultural (industrial and service) sector, facilitated by drawing surplus labour in the agricultural sector. In the Lewis theory, an economy transits from the first, labour-surplus stage to the second, labour-scarce stage of development. Later, Ranis and Fei (1961) formalised the Lewis theory and defined three phases of dualistic economic development by sub-dividing the first stage in the Lewis model into two phases. Thus, the second labour-scarce stage of the Lewis model corresponds to phase three of the Ranis-Fei model. These three phases, are distinguished by the marginal productivity of agricultural labour. The entry into each phase is marked three turning points: The breakout point leads to phase one growth with redundant agricultural labour. The shortage point leads to phase two growth with disguised agricultural unemployment. The commercialisation point leads to phase three of self-sustaining economic growth with the commercialisation of the agricultural sector. The two economists John Fei and Gustav Ranis presented their dual economy model. There was a flaw in Lewis model that it did not pay enough attention to the importance of agricultural sector in promoting industrial growth. But Fei-Ranis model of dual economy explains how the increased productivity in agricultural sector would become helpful in promoting industrial sector. In this respect, it presents three stages whereby underdeveloped countries moves from stagnation to self-sustained economic growth. Thus, this model is treated as an improvement over Lewis model of unlimited supply of labor.
    Like in the Harrod-Domar model, savings and investment become the driving forces when it comes to economic development of underdeveloped countries. It has been asserted that Fei and Ranis did not have a clear understanding of the sluggish economic situation prevailing in the developing countries. If they had thoroughly scrutinized the existing nature and causes of it, they would have found that the existing agricultural backwardness was due to the institutional structure, primarily the system of feudalism that prevailed.
    ARGUMENT
    Fei and Ranis say, “It has been argued that money is not a simple substitute for physical capital in an aggregate production function. Directing majority of my arguments on the analysis by Ranis and Fei in A Theory of Economic Development, The central idea behind the Lewis model is fairly simple. Lewis divided labour force into two differentiated groups subsistence sector and capitalist sector where the former is assumed to contain unlimited supply and consequently, a pool of surplus labour that sets labour-supply conditions for the latter.
    There are reasons to believe that the relationship between money and physical capital could be complementary to one another at some stage of economic development, to the extent that credit policies could play an important part in easing bottlenecks on the growth of agriculture and industry.” This indicates that in the process of development they neglect the role of money and prices. They fail to differ between wage labor and household labor, which is a significant distinction for evaluating prices of dualistic development in an underdeveloped economy.Thus we find that whereas Lewis had failed to offer a satisfactory explanation of this subsistence sector and ignored the real impact of population growth on the choice of capital intensity on the process of surplus labor absorption. Moreover, Fei-Ranis model emphasized upon the simultaneous growth of agriculture and industrial sectors. Thus Fei-Ranis model believes in ‘Balanced Growth’ in the take-off stage. It means that there should be a simultaneous investment in both agricultural sector and industrial sector. According to Fei-Ranis model in the beginning the surplus rises; such surplus will be available as a capital in the take-off stage. Some part of this surplus will be used in agricultural development, while some part will be reploughed in industrial development. As a result, both agricultural and industrial sectors will grow under ‘Balanced Growth’ pattern.
    Fei-Ranis model argued that surplus can be generated by the investment activities of the land lords and by the fiscal measures of the government. However, leakages could exist because of the cost of transferring the labor from agricultural sector to industrial sector in the form of transport cost and building of schools and hospitals, etc. Moreover, the transference may lead to increased per capita consumption of agricultural output, and a gap may also emerge in case of rural wages and urban wages. Again, if the supply curve of- the labor is backward bending, the peasants may reduce their work effort as their incomes rise.
    we refer to the two sectors as agricultural and non-agricultural. Lewis (1954) originally named the two sectors as the subsistence and the capitalistic sectors and later on in Lewis (1979) referred to them as the traditional and modern sectors. Jorgenson (1967, p.291) elaborates further on the distinction between the two sectors and narrows this down to the stylised fact that the two sectors do not share the same production technology, particularly when it comes to capital accumulation. For agricultural labour productivity is very low due to the presence of surplus labour relative to other scarce resources. The agricultural wage rate is lower than the non-agricultural sector.
    CRITICISM
    i) Marginal Productivity of Labor in Phase I: The FR model is of the view that MFL = 0 in the first phase of growth, and the transfer of labor from agriculture would not reduce output in the agricultural sector in phase I. But the economists like Berry and Soligo are of the view that agricultural output in phase I of Fei-Ranis model will not remain constant and may fell under different systems of land tenure, that is the peasant proprietorship and share cropping etc.
     
    (ii) Marginal Productivity of Labor is Not Zero: Prof. Jorgenson who has also presented a model of ‘dual economy’ has object FR model’s contention of zero MP in phase I. He says whether MPL will be zero is an empirical issue. During the seasons of sowing and harvesting the MPL > 0. Jorgenson concluded on the basis of Japanese data even for the pre I world war period the supply of labor was not unlimited. Then how MPL can be zero.
     
    (iii) Ignoring The Role of Capital: The FR model concentrated upon land and labor as the determinants of output, ignoring the role of capital. But Profs. Brown, Byres, Frankel, Griffen, Ghatak and Ingersent are of the view that in the underdeveloped countrie there has occurred what is known as ‘Green Revolution’ in agriculture, which has promoted the greater use of capital and technology on lands. Consequently, there has been a greater increase in the agricultural productivity and agricultural incomes.
     
    (iv) Open Economy: FR model ignored the role of foreign trade as it assumed a closed economy model. In the 2nd phase when agricultural product decreases, the Terms of trade goes against industrial sector. This would occur in the presence of closed economy. But if the model is made open such would not happen as the goods could be imported in the presence of then-scarcity. This was especially observed in case of Japan which imported cheap farm products to improve her terms of trade .
     
    (v) Supply of Land in Long Run: FR model assumed that in the process of economic development the supply of land remained fixed. But it is not true. The supply of land can be increased in case of long run.
     
    (vi) Commercialization Of Agriculture And Inflation: According to FR model when 3rd phase starts the agricultural sector becomes commercialized. But it is criticized by saying that this phase does not start so easily The shifting of labor to industrial sector will create labor shortage in agricutural sector. This will create shortage of food stuff leading to increase in their prices. In this way, inflation will generate which may obstruct the process of development.
    ASSUMPTIONS
    The assumption was that, in the agricultural sector, Fei and Ranis assume constant returns to scale in the industrial sector. The main factors of production are capital and labor.
    -There is an abundance of labor in such underdeveloped countries and shortage of natural resources.
     
    – The population growth rate is very high which results in mass unemployment in the economy.
     
    – The major share of the population is engaged in agriculture. But agricultural sector is stagnant. Hence, the marginal productivity of labor is zero and negative in agricultural sector.
     
    – There are certain non-agrarian sectors in the economy where there is reduced use of capital.
     
    – There is a dynamic industrial sector in the economy.
    One of the biggest drawbacks of the Lewis model was the undermining of the role of agriculture in boosting the growth of the industrial sector. In addition to that, he did not acknowledge that the increase in productivity of labor should take place prior to the labor shift between the two sectors. However, these two ideas were taken into account in the FeiRanis dual economy model of three growth stages. They further argue that the model lacks in the proper application of concentrated analysis to the change that takes place with agricultural development In Phase 1 of the FeiRanis model, the elasticity of the agricultural labor work-force is infinite and as a result, suffers from disguised unemployment. Also, the marginal product of labor is zero. This phase is similar to the Lewis model. In Phase 2 of the model, the agricultural sector sees a rise in productivity and this leads to increased industrial growth such that a base for the next phase is prepared. In Phase 2, agricultural surplus may exist as the increasing average product (AP), higher than the marginal product (MP) and not equal to the subsistence level of wages.

    COMPARISM WITH THE REAL WORLD
    by applying the Labor Reallocation specified by the World Bank (1996). The approach suggest that labor reallocation has a positive impact on Chinas economic growth, accounting for 1 to 2 percent per annum of GDP growth. We find out that the effect of labour reallocation has declined since the mid-1990s because of less absorption of the surplus rural labour in the non-agricultural sector, particularly in industry. Furthermore, we find that the gap of labour productivities between the two sectors is widening, which is at odds with the theoretical expectation. This reflects the effects of market imperfections and government intervention. A critical minimum effort is required for China to release the remaining disguised agricultural unemployment and enter phase three of economic development. Fei and Ranis (1973) analysed the economic development of Taiwan in 1965-1975 and Korea in 1966-1980 by comparing descriptive statistics and their results also supported the Lewis theory. However, Ho (1972) tested the Lewis theory on Taiwan for the period 1951-1965 and found that technological progress played a far more important role on economic growth than sectoral labour migration unlike my country Nigeria where agriculture happen to be the focal point of economic growth, this is to say that Nigeria was not really in support of lewis model of undermining the role of agriculture in boosting the industrial sector even though Nigeria and every other developing countries will still have to pass and benefit from the lewis model.

     
     

    AN ESSAY ON THE SUMMARY OF HARRIS TODARO MODEL OF MIGRATION
    INTRODUCTION
    The HarrisTodaro 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 Harris-Todaro model of the rural-urban migration process is revisited under an agent-based approach. The migration of the workers is interpreted as a process of social learning by imitation, formalized by a computational model. By simulating this model, we observe a transitional dynamics with continuous growth of the urban fraction of overall population toward an equilibrium. Such an equilibrium is characterized by stabilization of rural-urban expected wages differential (generalized Harris-Todaro equilibrium condition), urban concentration and urban unemployment. These classic results obtained originally by Harris and Todaro are emergent properties of our model.incentives, earnings differentials, and the probability of getting a job at the destination have influence on the migraton decision. In other words, these authors posit that rural-urban migration will occur while the urban expected wage exceed the rural wage.From this crucial assumption, as denominated by Harris-Todaro, is deduced that the migratory dynamics leads the economic system toward an equilibrium with urban concentration and high urban unemployment.The model was an academic investigation to throw light on the events following Tripartite Agreement in Kenya. The newly independent Kenya in the 1960s was increasingly facing a serious situation of unemployment in the major urban cities. To cope with the situation of unemployment,TripartiteAgreement was signed between the government public sector and theprivate sector. The agreement increased employment in the industrial jobs in exchange for unions agreeing to hold wages at their current levels.
    HISTORY
    The received theory of rural-urban migration, first set forth in Todaro (1968), has been revised and augmented by Todaro (1969), Harris and Todaro (1970), again by Todaro (1971), and by Johnson (1971). The Harris-Todaro ver￾sion is best known and we shall consider it in that form. The model treats rural-urban migration primarily ~.s an economic phenomenon. In essence, the theory postulates that workers compare the expected incomes in the urban sector with agricultural wage rates and migrate if the former exceeds the latter. Rural-urban migration is thus the equilibrating force which equates rural and urban expected incomes and as such is a disequilibrium phenomenon.The three basic characteristics of their model–that migration occurs largely for economic reasons, that the migration decision depends on expected ralher than nominal wage differentials, and that migration takes place in dis￾equilibrium–suggest that rural-urban migration be given a new emphasis. Rather than considering it as a key phenomenon in its own right, migration could better be regarded as the adjustment mechanism by which workers allocate themselvesbetween different labor markets, some of which are located in urban areas and some in rural areas.The larger number of employment was expected to reduce unemployment, but it appeared that the urban unemployment had increased following the governments agreement. Harris and Todaro subsequently formulated amodelto explain rural-urban economic preferences to migrate. The distinctive concept in the model is that the rate of migration flow from rural (agricultural) areas to urban (industrial) areas is determined by the difference between expected urban wages and rural wages.
    COMPARING HARRIS TODARO MODEL WITH LEWIS AND FEI RANIS MODEL
    By contrast to the Todarian models, the rural surplus labor models — supporting rural to urban migration — seem to be better founded. What really matters in the Lewis, Ranis and Fei models is not whether there is disguised unemployment in rural areas, but whether the rural sector can massively supply migrants to the urban sector to accompany rapid national growth. The fundamental contribution of Harris and Todaros rural-urban two sector migration model was to build a model that fit the stylized facts of the labour market. On the lines of the theory, developing countries adopted program on integrated rural development which encouraged an increase in the rural traditional sector wage. The theory proves that the higher the unemployment rate, the lower is the probability of new migrants from the countryside actively seeking formal sector employment who are unable to find it. The significant findings of the theory are: first, if the expected urban wage equals rural income, there is no incentive to migrate. Second, if the expected urban wage is greater than rural income, there is a great incentive to move from rural to urban area. Third, if the expected urban wage is less than rural incomes, there would be an incentive to move in other direction. Fourth, the expected urban wage depends on what type of job migrant is engaged in. Therefore, the Harris Todaros model helps policy-makers to avoid two mistakes. One is to assume that development efforts should necessarily be channelled to the sectors where the poor are. The other is to assume that efforts should necessarily be focused on getting the poor out of the sectors in which they presently are. Both the Lewis and Ranis and Fei formalizations describe in a very stylized manner a general mechanism occurring at an initial stage of economic development, which justifies the assumed scarcity of capital and the abundance of labor in these models. The assumption of zero marginal productivity and remuneration at the average product in the agricultural sector is more debatable and has been criticized even though it probably should not be taken at face value: what really matters in the model is that the rural sector can massively provide migrants to the urban sector. In this simple framework, internal migration is desirable to the extent that it accompanies growth. The policy implication of this model is that governments in countries experiencing a transition from a labor-intensive agricultural economy to an economy with significant industrial and services sectors should see to it that migration from rural to urban areas is at least not impeded, and ideally is even facilitated. This type of model also suggests that government should ensure that investments are intense enough for the take-off to ever occur. This would tend to argue in favor of policies favoring investments in modern labor-intensive industries in order to exhaust rural disguised unemployment. It is important, nevertheless, to keep in mind that the Lewis framework applies only to a particular phase of the development process and sheds little light on other contexts. It appears to inadequately describe the urbanization process of many Sub-Saharan African countries, even at the beginning of their urban transition.5In particular, the observation in the late 1960s that urban areas experienced high levels of unemployment suggested that these models might not tell the right story about rural urban interactions. The Todaro (1969) and Harris-Todaro (1970) models also consider the role of internal migration in a dual economy in which the urbansector draws labor force from the rural sector. But the change of focus is radical. In the Lewis model, internal migration removed disguised unemployment from rural areas and enabled the transition to a modern economy. In Todarian models, the focus is on explaining the existence of unemployment in urban areas and its link with internal migration.
    ASSUMPTIONS OF THE MODEL
    Some of the assumptions of the Harris-Todaros model were judged to be too restrictive.The model also assumesthat potential migrants are risk neutral where the poor migrants will likely be risk averse, as in they are indifferent between a certain expected rural income and an uncertain expected urban income of the same magnitude. The assumption that there exists a perfect competition in rural agriculture sector is not realistic.
    Harris and Todaro studied the migration of workers in a two-sector economic system, namely, rural sector and urban sector. The difference between these sectors are the type of goods produced, the technology of production and the process of wage determination. The rural sector is specialized in the production of agricultural goods. The productive process of this sector can be described by a Cobb-Douglas production function: where Ya is the production level of the agricultural good, Na is the amount of workers used in the agricultural production, Aa > 0 and 0 < f 0 and 0 < a 0 and g > 0 are a parametric constant. g is the elasticity of p with respect to the ratio Ym/Ya. The overall population of workers in the economy is N, which is kept constant during the whole period of analysis. By assumption there are only two sectors and rural prices wholly flexible, which implies that there is full employment in the rural area, i.e., all workers living at the rural sector are employed at any period. Then at any period the following equality is verified:
    ARGUMENTS

    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 is 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 drive of rural-urban migration, while urban unemployment is local governments’ main concern in many cities.Rural to urban migration will take place if, With the random matching of workers to available jobs, the ratio of available jobs to total job seekers gives the probability that any person moving from the agricultural sector to the urban sector will be able to find a job. As a result, in equilibrium, the agricultural wage rate is equal to the expected urban wage rate, which is the urban wage multiplied by the employment rate.

    Therefore, migration from rural areas to urban areas will increase if: Urban wages (wu) increase in the urban sector (le), increasing the expected urban income. Agricultural productivity decreases, lowering marginal productivity and wages in the agricultural sector (wr), decreasing the expected rural income. However, even though this migration creates unemployment and induces informal sector growth, this behaviour is economically rational and utility-maximizing in the context of the HarrisTodaro model. As long as the migrating economic agents have complete and accurate information concerning rural and urban wage rates and probabilities of obtaining employment, they will make an expected income-maximizing decision.
    CONCLUSIONS WITH THE REAL WORLD
    the conditions for the Todaro paradox to hold. At best empirical tests have provided microeconomic evidence consistent with the migration incentives present in the HarrisTodaro model, measuring for instance how rural dwellers respond to an increase in the wage differential. But this type of evidence does not provide a real test of the link between urban unemployment and migration. In other words, the validity of the model has not been clearly established even though it certainly influenced policies for decades. Many countries have implemented policies aimed at forbidding migration from rural to urban areas. In South Africa, the Apartheid system (1948-1994) used extreme controls to monitor what was meant to be the temporary migration of rural workers to cities

  46. Avatar Okoye Kingsley Chigozie says:

    NAME:OKOYE KINGSLEY CHIGOZIE
    Email:okoyekingsley93@gmail.com
    REG NO: 2017/249561
    Lawis-Fei-Ranis surplus labour theory.
    Lawis-Fei-Model is well recognized in development economics.it provides insight into the early stages of development. it defines two types of surplus labour. it considers the pattern of production and of population growth in the traditional agricultural sector to define the subsistence level of consumption.it considers two wage determination mechanisms in the modern sector, which are then applied to the relationships between these mechanisms and labour market restrictions. Fourth, the role of agriculture and food supply is discussed. it considers the dynamics of surplus labour and labour transfer.
    the key concepts in the Lewis model is the ‘subsistence wage’, the starting point of the Lewis model is the wage level in the traditional sector(Agriculture).this model tries to study the organisational structure and the distributional principles of the traditional economy. investigates the characteristics of the traditional economy and analyses the wage determination mechanism in the traditional sector.in this case we assume that the economy is closed and in the long run equilibrium.In this traditional agricultural society, population growth is that described by Malthus (1798). Malthus’ basic idea is this: there is a negative relationship between population level (which is itself endogenously determined) and income per capita. It predicts that population will adjust up or down (by births or deaths) until all individuals are at the subsistence level of consumption. In the long run, income per capita is limited by the available technology, so that the population growth rate is proportional to the rate of technological change (Kremer, 1993). Historical evidence supports the Malthusian hypothesis, as up until the last 200 years the population grew very slowly, despite a biological potential for very rapid growth.
    SURPLUS LABOR THEORY.
    Many neoclassical economist still doubt the existence of surplus labor in the economy.surplus labour implies the existence of a point at which the marginal product of labour becomes zero and labour can be transferred out of the traditional sector without reducing the quantity of output, as noted by Wellisz (1968: 22)
    10discussion. This section considers the various definitions of surplus labour and clarifies them. The simple definition of surplus labour implies the existence of a point at which the marginal product of labour becomes zero and labour can be transferred out of the traditional sector without reducing the quantity of output, as noted by Wellisz (1968: 22): The (disguised-unemployment or the Unlimited Supply of Labour) hypothesis claims that in poor, densely populated countries, more people are employed than needed to produce the prevailing output with the existing techniques and the existing supply of non-labour inputs. The ‘surplus’ labour constitutes ‘hidden’ or ‘disguised’ unemployment. Many of the proponents of the hypothesis make the further claim that agricultural output will not decrease, and industrial output will increase, if measures are taken to re-allocate labour from subsistence agriculture (where the surplus is supposed to exist) to industry (where there is no surplus labour). Since labour can be removed from agriculture at no social cost, its supply to industry is, in a sense, ‘unlimited’ as long as disguised unemployment prevails. However, Ranis does not agree with this definition of ‘surplus labour’, preferring to regard those whose marginal product lies below their consumption or income share as ‘surplus labour’, or more specifically, as ‘disguised unemployed’ or ‘underemployed.
    According to him;there exist some sectors or sub-sectors in which, in the presence of a large endowment of unskilled labour and the absence of sufficient cooperating land or capital, with a given technology and a wage level bounded from below, labour markets cannot clear. A full employment, neoclassical ‘wage equals marginal product’ solution would drive remuneration below socially acceptable, possibly subsistence, levels of consumption. Consequently, a labour surplus exists in the sense that a substantial portion of the labour force contributes less to output than it requires, i.e., its marginal product falls below its remuneration, set by bargaining. an unlimited supply of labour may be said to exist in those countries where population is so large relatively to capital and natural resources, that there are large sectors of the economy where the marginal productivity of labour is negligible, zero, or even negativ

  47. Avatar OKORIE LOVELYN AGBAI says:

    LEWIS FEI-RANIS MODEL
    The Lewis Fei-Ranis model is for overpopulated and under developed economy. It is based on dualistic economic development because The theory explains a way the industrial sector and agricultural sector can grow simultaneously without a lapse in the other or in the improvements rather than at its expense. There is always a unique, sole characteristic of surplus agricultural labor found in this kind of economy. The model is an attempt to balance agricultural and industrial growth in these economies. Lewis previously held that Economic growth in such economy can be achieved by investments in the non-agricultural sector by extracting surplus labor in the agricultural sector. But John Fei and Gustav explained how increase in productivity in agricultural sector would be helpful in promoting industrial sector too. The model explains that the complete shift the focus of progress from the agricultural to industrial economy does not mean that agricultural sector should be negligible rather its output should still be sufficient to support the whole economy with food and raw materials. With the assumption that large proportion Of the high population in these countries is engaged in agriculture and still agriculture is stagnant therefore marginal productivity of labor is zero and negative in agricultural sector while there are certain non agrarian sectorsIn the economy where there is reduced use of capital. This model suggests that if this surplus labor in the agricultural sector is transferred to industrial sector where their productivity will increase, economic development will be taking place.
    They argue that an economy goes through three phases of development. In phase 1, marginal product of labor is equal to zero. The first phase is where surplus labor Can be withdrawn from agricultural sector without changing agricultural output. In the second phase of the development, additional output due to an increase in labor begins to rise as transfer takes place from agricultural sector to industrial sector, average Product falls showing an increase in real wages of industrial workers because sThere is shortage of food supply. The real wages in industrial sector is fixed and equal to real income in agricultural sector. These wages are called institutional wages. in the second stage labor surplus exist where Apl>MPL But it is not equal to institutional wages. If the migration to industrial sector continues, there will be a time from workers produce output that is equal to institutional wages.
    The third stage is characterized by self sustained growth where farm workers produce more than the institutional which they get because disguised unemployment has been eliminated. Surplus labor ends and the agricultural sector becomes commercialized sector. MPL here is greater than CIW, disguised unemployment is eliminated. As labor is transferred to industrial sector there will be labor shortage in the agricultural sector so industrial sector cannot get the labor at the same prevailing constant wages therefore the wages in the industrial sector will rise.
    From my own point of view the Fei-Ranis model did not take into account the very possible case where a constant transfer of labor from the agricultural sector to the industrial sector causes an extreme shortage of labor in the agricultural sector the model holds that the rate of labor transfer must exceed the rate of population growth. If the largest proportion of the workforce in the country goes to the industrial sector outputs will not be anything close to sufficient to support the whole economy with food and raw materials as Nigeria is facing now. This model is prevalent in Nigeria where labor has been shifted to the industrial sector. Disguised unemployment previously faced by the agricultural sector is now the problem of industrial sector. Shortage of labor in agricultural sector has led to shortage of food supply and raw materials in the economy.

    The Harris Todaro Model of Migration

    The basic assumption of this model is high expected income in the urban areas than the rural areas. Equilibrium according to this model is reached when expected wage in urban areas is equal to the marginal product of an agricultural worker. It also has the assumption that unemployment is nonexistent in the rural agricultural sector and that rural agricultural products and subsequent market is perfectly competitive which means that agricultural rural wage is equal to agricultural marginal productivity. In equilibrium, rural-urban migration rate is zero since expected rural income equals expected urban income, which is leading to positive unemployment in the urban sector. Expected urban wage rate is equal to urbanwageXemployment rate. Rural urban migration will increase if urban wages increase in the urban sector, increasing the expected urban income and agricultural productivity also decreases, decreasing marginal productivity and wages in the agricultural sector therefore decreasing the expected rural income. This is nothing different to the current Nigerian economy. The expected income in urban areas has caused total neglect to the rural agricultural sector. The rural-urban migration is only rational if equilibrium is achieved, (where expected real wage in urban areas equals marginal product of an agricultural worker). But in the real sense, rural-urban migration is as a result of increase in urban wages in the urban sector which has caused a decrease in expected wages in rural sector.
    The neglect to rural agricultural sector caused by rural-urban migration has brought about: shortage of food supply and raw materials, overpopulation and unnecessary competition in the urban sector leading to high crime rates, and a large number of people chasing too few jobs.
    This brings an economy back to a state of inadequate development as is seen in Nigeria today.

  48. Avatar Ani kenechukwu joseph says:

    Ani kenechukwu Joseph
    2017/242423

    INTRODUCTION

    LEWISVILL -FEI-RANIS MODEL ( THE SURPLUS LABOUR THEORY)
    One of the best-known early theoretical models of development that focused on the structural transformation of a primarily subsistence economy was that formulated by Nobel laureate W. Arthur Lewis in the mid-1950s and later modified, formalized, and extended by John Fei and Gustav Ranis. It is a dualism model in development and welfare economics. It is also known as the Surplus Labour Model. The Lewis two-sector model became the general theory of the development process in surplus-labor developing nations during most of the 1960s and early 1970s, and it is sometimes still applied, particularly to study the recent growth experience in China and labor markets in other developing countries. There was a flaw in Lewis model that it did not pay enough attention to the importance of the agricultural sector in promoting industrial growth. But Fei-Ranis (FR) model of dual economy explains how the increased productivity in agricultural sector would become helpful in promoting industrial sector. In this respect, it presents three stages whereby a underdeveloped country moves from stagnation to self-sustained economic growth. Thus, this model is treated as an improvement over Lewis model of unlimited supply of labor. This is because the assumption of unlimited supply of labour is unrealistic. Since Fei-Ranis model builds on the proponents of Lewis two-sector model, both are generally referred to as Lewis-Fei-Ranis model. Therefore, it is a matter of necessity to first define the Lewis two-sector model.
    tries. In the Lewis model, the underdeveloped economy consists of two sectors:a traditional, overpopulated rural subsistence sector characterized by zero marginal labor productivity ( a situation that permits Lewis to classify this as surplus labor in the sense that it can be withdrawn from the traditional agricultural sector without any loss of output) and a high-productivity modern urban industrial sector into which labor from the subsistence sector is gradually transferred.The Lewis two-sector theory of development in which surplus labor from the traditional agricultural sector is transferred to the modern industrial sector, the growth of which absorbs the surplus labor, promotes industrialization, and stimulates sustained development. Here, Surplus Labour means the excess supply of labor over and above the quantity demanded at the going free-market wage rate. In the Lewis two-sector model of economic development, surplus labor refers to the portion of the rural labor force whose marginal productivity is zero or negative
    In this line with this mode of thinking, the Lewis-Fei-Ranis model recognizes the presence of a dual economy comprising both the modern and the primitive sector and takes the economic situation of unemployment and underemployment of resources into account, unlike many other growth models that consider underdeveloped countries to be homogenous in nature. According to this theory, the primitive sector consists of the existing agricultural sector in the economy, and the modern sector is the rapidly emerging but small industrial sector. Both the sectors co-exist in the economy, wherein lies the crux of the development problem. Development can be brought about only by a complete shift in the focal point of progress from the agricultural to the industrial economy, such that there is augmentation of industrial output. This is done by transfer of labor from the agricultural sector to the industrial one, showing that underdeveloped countries do not suffer from constraints of labor supply. At the same time, growth in the agricultural sector must not be negligible and its output should be sufficient to support the whole economy with food and raw materials. Like in the Harrod–Domar model, saving and investment become the driving forces when it comes to economic development of underdeveloped countries.
    Like most economic theories, the Lewis-Fei-Ranis model relies on various assumptions:
    (i) There is an abundance of labor in such underdeveloped countries and shortage of natural resources.
    (ii) The population growth rate is very high which results in mass unemployment in the economy.
    (iii) The major share of population is engaged in agriculture. But agriculture sector is stagnant. Hence, the marginal productivity of labor is zero and negative in agriculture
    sector.
    (iv) There are certain non-agrarian sectors in the economy where there is reduced use of capital.
    (v) There is a dynamic industrial sector in the economy.

    -Todaro Migration Theory
    The migration theory developed by John H. Harris and Michael Todaro is an economic model that assumes that migration decision is based on the expected difference between the income of rural and urban areas rather than just wage difference.
    The model assumes that people miagrate to urban areas is because of the believe that they can earn higher in the urban area.
    Cobb-Douglas production function.

    Impact of the Theory on Nigeria
    In the case of Nigeria, the assumption of the Harris-Todaro model are very much significant given that a lot of people have migrated from the rural areas into the urban areas of the country in order to seek for higher paying jobs in manufacturing companies or greener pasture.
    Thus, the assumptions of the Harris-Todaro model of migration holds true in developing countries Nigeria inclusive.

  49. Avatar Francis Chibuezem David says:

    Name: Francis Chibuezem David
    Reg. No: 2017/241445
    E-mail: francischibuezem247@gmail.com

    Harris-Todaro model
    1. Productive process
    The rural sector is specialized in the production of agricultural goods. The productive process of the rural sector can be described by a Cobb-Douglas production function:
    where Ya is the production level of the agricultural good, Na is the amount of workers used in the agricultural production, Aa > 0 and 0 < f 0 and 0 < a 0 and g > 0 are a parametric constants. g is the elasticity of p with respect to the ratio Ym/Ya.
    4. The overall population of workers in the economy is N, which is kept constant during the whole period of analysis. By assumption there are only two sectors and rural prices are wholly flexible, which implies that there is full employment in the rural area, i.e., all workers living at the rural sector are employed at any period. Then at any period the following equality is verified:

    Summary
    The haris todaro model is a dualistic economic model which shows the relationship between the rural and urban areas. It also shows the reason for rural-urban migration and explains that rural production is majorly agricultural goods while urban production is known as manufactured goods. According to this model, individuals migrate from rural areas to urban areas in search of better opportunities and standard of living.
    Nigeria is and LDC and so it also has the characteristics of this model which is a dual sector economy. Nigeria also has the characteristics of rural-urban migration of people in search of greener pastures. My only critic of this model is the assumption of full employment in rural areas because rural areas in Nigeria is characterized of large unemployment and underemployment.

    Lewis-Fei-ranis model
    The Fei-ranis was developed by John C. H. Fei and Gustav Ranis and can be understood as an extension of the Lewis model. It is also known as the Surplus Labor model. This model recognizes the presence of a dual economy comprising both the modern and the primitive sector and takes the economic situation of unemployment and underemployment of resources into account.
    They further argue that the model lacks in the proper application of concentrated analysis to the change that takes place with agricultural development. In Phase 1 of the Fei–Ranis model, the elasticity of the agricultural labor work-force is infinite and as a result, suffers from disguised unemployment. Also, the marginal product of labor is zero. This phase is similar to the Lewis model. In Phase 2 of the model, the agricultural sector sees a rise in productivity and this leads to increased industrial growth such that a base for the next phase is prepared. In Phase 2, agricultural surplus may exist as the increasing average product (AP), higher than the marginal product (MP) and not equal to the subsistence level of wages.
    Phase 1: AL=M
    According to Fei and Ranis, AD amount of labor (see figure) can be shifted from the agricultural sector without any fall in output. Hence, it represents surplus labor.
    Phase 2: AP>MP
    After AD, MP begins to rise, and industrial labor rises from zero to a value equal to AD. AP of agricultural labor is shown by BYZ and we see that this curve falls downward after AD. This fall in AP can be attributed to the fact that as agricultural laborers shift to the industrial sector, the real wage of industrial laborers decreases due to shortage of food supply, since less laborers are now working in the food sector. The decrease in the real wage level decreases the level of profits, and the size of surplus that could have been re-invested for more industrialization. However, as long as surplus exists, growth rate can still be increased without a fall in the rate of industrialization. This re-investment of surplus can be graphically visualized as the shifting of MP curve outwards. In Phase2 the level of disguised unemployment is given by AK. This allows the agricultural sector to give up a part of its labor-force until
    Phase 3 begins from the point of commercialization which is at K in the Figure. This is the point where the economy becomes completely commercialized in the absence of disguised unemployment. The supply curve of labor in Phase 3 is steeper and both the sectors start bidding equally for labor.
    Phase 3: MP>CIW
    The amount of labor that is shifted and the time that this shifting takes depends upon:

    The growth of surplus generated within the agricultural sector, and the growth of industrial capital stock dependent on the growth of industrial profits;
    The nature of the industry’s technical progress and its associated bias;
    Growth rate of population.
    The major ideas in this model are:
    1. Agricultural growth and industrial growth are both equally important;
    2. Agricultural growth and industrial growth are balanced;
    3. Only if the rate at which labor is shifted from the agricultural to the industrial sector is greater than the rate of growth of population will the economy be able to lift itself up from the Malthusian population trap

  50. Avatar Francis Chibuezem David says:

    Name: Francis Chibuezem David
    Reg. No: 2017/241445
    E-mail: francischibuezem247@gmail.com

    Harris-Todaro model
    1. Productive process
    The rural sector is specialized in the production of agricultural goods. The productive process of the rural sector can be described by a Cobb-Douglas production function:
    where Ya is the production level of the agricultural good, Na is the amount of workers used in the agricultural production, Aa > 0 and 0 < f 0 and 0 < a 0 and g > 0 are a parametric constants. g is the elasticity of p with respect to the ratio Ym/Ya.
    4. The overall population of workers in the economy is N, which is kept constant during the whole period of analysis. By assumption there are only two sectors and rural prices are wholly flexible, which implies that there is full employment in the rural area, i.e., all workers living at the rural sector are employed at any period. Then at any period the following equality is verified:

    Summary
    The haris todaro model is a dualistic economic model which shows the relationship between the rural and urban areas. It also shows the reason for rural-urban migration and explains that rural production is majorly agricultural goods while urban production is known as manufactured goods. According to this model, individuals migrate from rural areas to urban areas in search of better opportunities and standard of living.
    Nigeria is and LDC and so it also has the characteristics of this model which is a dual sector economy. Nigeria also has the characteristics of rural-urban migration of people in search of greener pastures. My only critic of this model is the assumption of full employment in rural areas because rural areas in Nigeria is characterized of large unemployment and underemployment.

    Lewis-Fei-ranis model
    The Fei-ranis was developed by John C. H. Fei and Gustav Ranis and can be understood as an extension of the Lewis model. It is also known as the Surplus Labor model. This model recognizes the presence of a dual economy comprising both the modern and the primitive sector and takes the economic situation of unemployment and underemployment of resources into account.
    They further argue that the model lacks in the proper application of concentrated analysis to the change that takes place with agricultural development[5] In Phase 1 of the Fei–Ranis model, the elasticity of the agricultural labor work-force is infinite and as a result, suffers from disguised unemployment. Also, the marginal product of labor is zero. This phase is similar to the Lewis model. In Phase 2 of the model, the agricultural sector sees a rise in productivity and this leads to increased industrial growth such that a base for the next phase is prepared. In Phase 2, agricultural surplus may exist as the increasing average product (AP), higher than the marginal product (MP) and not equal to the subsistence level of wages.[6]

    Using the help of the figure on the left, we see that
    Phase 1: AL=M
    According to Fei and Ranis, AD amount of labor (see figure) can be shifted from the agricultural sector without any fall in output. Hence, it represents surplus labor.
    Phase 2: AP>MP
    After AD, MP begins to rise, and industrial labor rises from zero to a value equal to AD. AP of agricultural labor is shown by BYZ and we see that this curve falls downward after AD. This fall in AP can be attributed to the fact that as agricultural laborers shift to the industrial sector, the real wage of industrial laborers decreases due to shortage of food supply, since less laborers are now working in the food sector. The decrease in the real wage level decreases the level of profits, and the size of surplus that could have been re-invested for more industrialization. However, as long as surplus exists, growth rate can still be increased without a fall in the rate of industrialization. This re-investment of surplus can be graphically visualized as the shifting of MP curve outwards. In Phase2 the level of disguised unemployment is given by AK.[4] This allows the agricultural sector to give up a part of its labor-force until
    Phase 3 begins from the point of commercialization which is at K in the Figure. This is the point where the economy becomes completely commercialized in the absence of disguised unemployment. The supply curve of labor in Phase 3 is steeper and both the sectors start bidding equally for labor.
    Phase 3: MP>CIW
    The amount of labor that is shifted and the time that this shifting takes depends upon:

    The growth of surplus generated within the agricultural sector, and the growth of industrial capital stock dependent on the growth of industrial profits;
    The nature of the industry’s technical progress and its associated bias;
    Growth rate of population.
    The major ideas in this model are:
    1. Agricultural growth and industrial growth are both equally important;
    2. Agricultural growth and industrial growth are balanced;
    3. Only if the rate at which labor is shifted from the agricultural to the industrial sector is greater than the rate of growth of population will the economy be able to lift itself up from the Malthusian population trap

  51. Avatar UGWOKE Paul C. says:

    Name: UGWOKE, PAUL CHUKWUEBUKA
    Red no. 2017/241059
    Dept. Edu/eco

    INTRODUCTION
    Since the wage in cities is higher than one in village people migrate into the cities hoping to get urban job. The probability to get a job depends on the size of unemployment pool in relation to the number employed in industries. Therefore, in many mostly less-developed countries urban unemployment is a big issue. W. Max Corden in his book Trade Policy and Economic Welfare claims that the possible reason for urban unemployment is the wage differential. This coexists with usually high minimum wage in industries and with a marginal product of labor in agriculture less than the urban minimum wage1.
    The model presented is derived from Migration, Unemployment and Development: A Two Sector Analysis original article by John R. Harris and Michael P. Todaro (1970)2 and W.M. Corden’s book mentioned above. In our approach we will assume as Harris and Todaro did that the expected urban wage is equal to the average wage of both urban employed and unemployed. Authors’ main claim is that the best policy to improve employment is to protect agricultural sector rather that manufacturing sector of the country. In this paper we will build a Harris-Todaro model of urban unemployment, discuss two cases: 1) subsidizing manufacturing, and 2) subsidizing agriculture, and test Harris and Todaro’s claim. For that purpose, we will run simulations for both cases in MS Excel, and try to analyze outcomes and suggest possible policies. The approach of the project will be comparative static.

    GENERAL ASSUMPTIONS OF THE MODEL

    • Two sectors: urban (manufacture) and rural (agriculture)
    • Rural-urban migration condition: when urban real wage exceeds real agricultural product
    • No migration cost
    • Perfect competition
    • Cobb-Douglas production function
    • Static approach
    • Low risk aversion

    J. R. HARRIS AND M. P. TODARO MODEL OF LABOUR MIGRATION AND REALLOCATION. Employment policy in developing countries like Nigeria cannot be formulated and implemented without answering a basic question, such as, how can underutilised labour be used in a develop¬ment strategy? Ragnar Nurkse and W. A. Lewis asserted that large numbers of people remain engaged in work which adds nothing to national output. Nurkse saw the reallocation of a sur¬plus labour to more productive uses, especially labour-intensive construction projects, as a major source of capital formation and economic growth.
    Lewis conceived a similar reallocation process but he focused on the ‘capitalist sector’, essentially industry, as the main employer of surplus labour. Both theories regarded the labour reallocation process as nearly costless but they worried about how to capture from the agricultural sector the food necessary to feed the transferred workers.
    While criticising the Lewis model, J. R. Harris and M. P. Todaro have developed a new model of economic development which is relevant for labour surplus countries like Nigeria. It is the best known model of internal migration in the context of present-day developing countries. The model has focused mainly on migration of labour from rural to urban areas caused by certain incentives. J. R. Harris and M. P. Todaro have referred to two types of migration—induced migration and internal mi¬gration.
    According to this model migrating workers are essentially participants in a lottery of rela-tively high-paid jobs in the towns. When new urban jobs are created the lottery becomes more attractive to potential migrants. Depending on their responsiveness to this improved opportu¬nity, more than one worker is likely to migrate for each job created.
    If so, the output foregone may be that of two or more agricultural workers, not just one. This is because those in the rural areas are primarily farmers. If the migrants bring some of their family members to urban areas more output will be lost. The reason is that the wife and children of migrants find fewer employment opportunities in towns than in the rural areas because they do not have land in the towns on which to grow food. This also leads to food shortage as the farm produce is drastically reduced.
    Internal Migration:
    According to J. R. Harris and M. P. Todaro, most of the internal labour migration which occurs in the course of economic development is from rural to urban areas. The model try to explain why the observed high rates of small- urban migration found in most developing countries is quite natural from an economic view point.
    In this model the expected real wage-differential between urban and rural areas is the main motivating force behind migration or the main determinant of the migration decision. The potential migrant first calculates the real income which he would get in the urban area for a job with his present effort. He next makes a personal judgement of the probability of obtain-ing such a job.
    He then compares the expected income with that which he hopes so obtain in the rural area. His migration decision is based on the difference. For example, suppose the ex¬pected rural income is N1000 per Month, and that real income of an urban job which is commensurate with his qualification is N2000.
    However, this information alone is not suffi¬cient to make the migration decision. If the subjective probability of getting the urban job was 0.4, than the expected income would be N800 and no migration would take place on this case expected urban wage = actual urban wage x the probability of getting a job
    800 = 0.4 x N2000
    If the probability were 0.8 the expected income would be Rs 1600 (= 0.8 x N2000) and the worker would migrate. (To this one may, of course, add the cost of transfer.) Thus the model brings into consideration the role of economic incentive in the migration decision.
    The Basic Model:
    The Harris-Todaro model assumes that migration from rural to urban areas depends majorly on the difference in wages between the rural and urban labour markets.
    That is:

    Where: Mt is the number of rural to urban migrants in time t, is response function, Wu is the urban wage and W is the rural wage. Since there is unemployment in the town (and it is as-sumed that there is no unemployment in rural areas), and every migrant cannot expect to find a job there, the model postulates that the expected urban wage with the rural wage. The expected urban wage is the actual urban wage times the probability of getting a job, or

    Where Weu = expected urban wage and p = probability of getting a job Here p is expressed as

    Where Eu is urban employment, Uu is urban unemployment and L is total urban work force. Harris and Todaro assume that all members of the urban labour force have equal chances of obtaining the jobs available. So Weubecomes simply the urban wage times the urban em-ployment rate.

    Migration in any given time then depends on these three factors:
    (a) The urban-rural wage gap,
    (b) The urban employment rate and
    (c) The responsiveness of potential migrants to the resulting opportunities.
    Thus

    Where Mt = migration in period t and h = the response rate of potential migrants
    As long as Weu > Wr the rural-urban migration will continue. It will stop only when migra¬tion has forced down the urban wage or forced up urban unemployment so much that expected urban wage (Weu) is covated to existing rural wage (Wr). If Wr > Weu there will be a flow of disappointed urban jobseekers back to the rural areas. This is known as reverse migration.

    Theoretical Implication of the Model:
    There is no need to deny the fact that any development project can be evaluated using social cost- benefit analysis. An important part of the social cost of any input is opportunity cost, its value in its next best alternative use. Labour hired for an urban formal-sector project might well be drawn from the urban informal sector also.
    The worker who moves out of the urban informal sector may, in turn, be replaced by someone from the rural sector. In this case, the output lost is that of the worker who was formerly in the rural sector, i.e., the worker at the end of the em¬ployment chain. For this reason, some analysts believe that the wage paid to casual agricultural labourers provides a good measure of the social cost of unskilled labour.
    However, this measure, although a good indicator of output foregone through labour reallo-cation, probably understates the true social cost of employing labour, which has other compo¬nents that are likely to be significant. One such component is induced migration. No doubt there are both pull and push factors behind internal labour migration that occurs in the course of economic development from rural to urban areas.
    Such migration can result either from favourable economic developments in the towns or from adverse developments in the rural areas. The Harris-Todaro model integrates these two sets of forces in their analysis of the proc¬ess of labour reallocation that is likely to occur during economic development. This is why the model was sort of innovation in the literature of development economics when it appeared for the first time in 1970′.
    The Policy Implications of the Model:
    The H-T model has far-reaching implications from the policy point of view. For example, if the government of the country concerned were successful in fostering industrial development in an urban area, employment would increase there.
    • The effect would be to increase the subjective productivity of getting urban employment in the minds of rural inhabitants. Migration would increase and the eventual effect of the new industrial development could be that urban unem-ployment becomes higher that the level prevailing before the new development took place.
    • There will be some level of urban employment which ensures equilibrium in the sense that no further migration takes place. Potential migrants may take a long-term view in arriving at a decision. They may consider that their desireness of obtaining an urban job will be higher after a waiting period of some months. Thus they will compare the present value of the sum of expected urban earnings with that of expected rural earnings.
    • They may be content to accept a low wage in the urban informal sector for some time. This might be a rational decision on a long-term basis. The root of the problem is the large difference between earnings in the modern industrial sector and those in the rural areas.
    • The former are well above the market clear¬ing levels for varies reasory. The long-term solution to the problem lies in adopting policies for both urban and rural areas which reduces the real income differences between the two areas.
    Comparisons between Harris-Todaro and Lewis models
    The Lewis model and Harris-Todaro model have similar outcomes in the sense of labour moving from rural agricultural areas into urban areas in search of modern industrial work as an approach to earn more money and leave poverty. However, the assumptions of the two models are very different and maybe this is why each model has had different impacts in terms of economic development history. The Lewis model is an early traditional model. which in practical situations does not work properly because of the assumptions. Therefore, the extent of the model is rarely realised. Although, this model does provide a good general theory on labour transiting in developing economies. The Harris-Todaro model, on the other hand, even with its problems with the assumptions, has lead to policy implications such as ways to reduce inequalities and bias between rural areas and urban cities as an attempt to reduce this migration problem.
    Overall, both models have increased awareness of the growing issues surrounding rural-urban migration. As many countries like India, Singapore and China act as success stories of this type of migration and economic transition as a catalyst towards leaving poverty, there are many developing nations who have not had the same success, but have suffered from a rise in urban poverty, unemployment and fall in living standards
    CONCLUSION
    Harris Todaro model explains some issues of rural-urban migration. This migration happens in case when expected rural income is higher than rural wages. In this case economy may have high rates of unemployment. The equilibrium condition of this model is when expected rural wage is equal to rural wage.
    When government subsidize manufacturing sector Harris Todaro paradox may happen. According to the authors job creation instead of dealing with unemployment problem actually may cause increase of unemployment. This happens when urban-rural wage differential is high enough, so rural workers move to the cities hoping to find a job with high wage. Obviously, not all these workers succeed in finding jobs which leads to unemployment.
    Another issue is that inducing minimum wages creates labor market distortions. Therefore, policy makers should not set the minimum wage rates.
    In addition, simulations showed that different policies’ outcomes depend on elasticity of labor demand in different sectors and on marginal product of labor.
    Reference
    Warner Max Corden, Trade Policy and Economic Welfare, 1997.
    Migration, Unemployment and Development: A Two Sector Analysis, John R. Harris and Michael P. Todaro, 1970.

    ASSIGNMENT TWO
    Lewis Ranis and Fei model
    Introduction
    Current literature on growth and development continues to be influenced by the one-sector Solow-type models or the two-sector Uzawa-type models, both of which have now been complemented by endogenous growth. While these endogenous growth models have recently begun to confront such issues as poverty traps at a theoretical level, they generally share the neoclassical feature of full employment and market clearing. In contrast, the surplus labor models advanced by Lewis (1954), and expanded upon by Ranis and Fei (1961, 1964, 1997), described a two-sector economy depicting an initially large traditional sector and a relatively small commercialized sector, with the key feature that the traditional sector does not adhere to the neoclassical full employment labor market clearing assumption. While various micro foundations can be constructed to detail why this might be so, at the macro level, which was the focus of these early dual economy models, it was sufficient to posit that labor was in excess supply relative to cooperating factors at the prevailing wage and technology, and thus that the commercialized sector faced an essentially infinitely elastic labor supply at any moment in time.
    With unskilled rural labor the abundant resource in many developing countries, especially at an early stage of their development, what determines the price of labor has continued to be a controversial issue, although it is clear that, in recent years, the neoclassical model and market clearing approaches have enjoyed increasing popularity in not only the theoretical but also the applied literature. The notion of an institutional or bargaining wage not based on marginal productivity fundamentals has been especially repugnant to orthodox economists. The rejection of the labor surplus model has, in part, been due to some confusion as to which of its assumptions are necessary as opposed to which are sufficient.
    The Lewis-Ranis-Fei model
    The Lewis (1954) theory of dualistic economic development provides the seminal contribution to theories of economic development particularly for labour-surplus and resource-poor developing countries. In the Lewis theory, the economy is assumed to comprise the agricultural and non-agricultural sectors. The agricultural sector is assumed to have vast amounts of surplus labour that result in an extremely low, close to zero, marginal productivity of labour. The agricultural wage rate is presumed to followthe sharing rule and be equal to average productivity, which is also known as the institutional wage. The non-agricultural sector has an abundance capital and resources relative to labour. It pursues profit and employs labour at a wage rate higher than the agricultural institutional wage by approximately 30 percent (Lewis, 1954, p.150). Thenon-agricultural sector accumulates capital by drawing surplus labour out of the agricultural sector. The expansion of the non-agricultural sector takes advantage of the infinitely elastic supply of labour from the agricultural sector due to its labour surplus. When the surplus labour is exhausted, the labour supply curve in the non-agricultural sector becomes upward-sloping.
    CONCEPT OF SURPLUS LABOUR
    The concept of surplus labour is widely discussed among development economics but its specific meaning needs to be defined, especially in technical terms, as many neoclassical economists still doubt the existence of surplus labour in an economy.
    Defining the source and the extent of surplus labour is then a prerequisite for further discussion. This section considers the various definitions of surplus labour and clarifies them.
    The simple definition of surplus labour implies the existence of a point at which the marginal product of labour becomes zero and labour can be transferred out of the traditional sector without reducing the quantity of output, as noted by Wellisz (1968: 22): The (disguised-unemployment or the Unlimited Supply of Labour) hypothesis claims that in poor, densely populated countries, more people are employed than needed to produce the prevailing output with the existing techniques and the existing supply of non-labour inputs. The ‘surplus’ labour constitutes ‘hidden’ or ‘disguised’ unemployment. Many of the proponents of the hypothesis make the further claim that agricultural output will not decrease, and industrial output will increase, if measures are taken to re-allocate labour from subsistence agriculture (where the surplus is supposed to exist) to industry (where there is no surplus labour). Since
    labour can be removed from agriculture at no social cost, its supply to industry is, in a sense, ‘unlimited’ as long as disguised unemployment prevails. However, Ranis (2004b) does not agree with this definition of ‘surplus labour’, preferring to regard those whose marginal product lies below their consumption or income share as ‘surplus labour’, or more specifically, as ‘disguised unemployed’ or ‘underemployed’. Ranis defines surplus labour as follows: The basic premise is that there exist some sectors or sub-sectors in which, in the presence of a large endowment of unskilled labour and the absence of sufficient cooperating land or capital, with a given technology and a wage level bounded from below, labour markets cannot clear. A full employment, neoclassical ‘wage equals marginal product’ solution would drive remuneration below socially acceptable, possibly subsistence, levels of consumption. Consequently, a labour surplus exists in the sense that a substantial portion of the labour force contributes less to output than it requires, i.e., its marginal product falls below its remuneration, set by bargaining. (Ranis, 2004b: 1) Lewis (1954: 141) provides a general definition that: an unlimited supply of labour may be said to exist in those countries where population is so large relatively to capital and natural resources, that there are large sectors of the economy where the marginal productivity of labour is negligible, zero, or even negative.
    This paper agrees with Lewis that both these circumstances exist, but we distinguish these two types of surplus labour: the labourers with positive but ‘negligible’ marginal because they have different implications in the wage determination in the modern sector, which will be discussed later. If w is the real wage of a labourer, we have:
    Definition 1: Type I surplus labour (or Absolute Surplus Labour, ASL): Labour is defined as Absolute Surplus Labour if the MPL is equal to or less than zero, that is,
    whenMPL ≤ 0 < ws ≤ w. Type II surplus labour (Relative Surplus Labour, RSL): Labour is defined as Relative Surplus Labour if the MPL is greater than zero but lower than the actual wage received, that is, when 0 < MPL < w . ASL is a narrow definition and RSL a more general one. The definition of RSL means that, as long as 0 < MPL < w holds, it does not matter if MPL is lower or higher than the subsistence level (whether s MPL w ), though normally it is assumed to be lower than the subsistence level ( s MPL < w ).
    Having defined the concept, let us now examine the micro-foundations of surplus labour to see how it operates in reality. Surplus labour also includes unutilised labour, including those who do not participate in production in the neoclassical way. People can be considered to be ‘surplus labour’ even if they do not work. That is, were they to work, their MPL would be small, zero or even negative. In reality, these people may stay idle, doing nothing, rather than participate in work and contribute non-positively. Of course, as discussed previously, they have to be supported by their families to survive. Their marginal utility of leisure is also zero. They want to work but there is no job for them. In such a situation, these people either do not work or work less than any reasonable conception of full time, and they could readily be put to work at subsistence level wages.
    For example, in the traditional agricultural economy, a certain amount of field work (e.g. ploughing a certain piece of land) may need either all family members to work one-fifth of their time, or only one-fifth of the members to work full-time while the rest are idle. Surplus labour exists in this sense.

    Conclusion
    For economies in the early stages of development, the rural agricultural sector consists of family farming units, with a hiring principle that is different from that of the firm. Family members work together and share the value of their output. They are paid not the marginal product but the average product of labour. Thus, it is possible that there exists surplus labour in many developing countries. The notions of surplus labour and disguised unemployment have been a central part of development economics since Lewis (1954).
    With the presence of surplus labour in the traditional sector, the modern sector can expand without increasing labour costs. This process will continue until the surplus labour in the traditional sector is used up. After this point is reached, wages begin to rise consistent with rising marginal productivity, in which the workers in the traditional sector would also be paid in accordance with their marginal product rather than the subsistence wage. At this stage, the dualistic economic structure disappears, replaced by acompetitive one-sector economy that can be explained by the neoclassical model.
    This paper contributes to the literature by clarifying some of the ambiguities in the discussions following Lewis’ model. There has long been a debate about the precise definition of surplus labour. This paper first identified the problem and defined two typesof surplus labour, with type I (absolute) surplus labour being defined to be when the marginal product of labour is equal to or even lower than zero, and type II (relative) surplus labour being when the marginal product of labour is higher than zero but lower than the wage level, which is set at the subsistence level in the long run. This seemingly simple distinction resolves much of the misunderstanding. Based on this classification of two types of surplus labour, we define two turning points: the type I turning point, when type I surplus labour is used up; and the type II turning point, when type II surplus labour is used up. The wage is constant before the type I turning point, increases slowly after it,,and the dual economy merges with the neoclassical one-sector economy after the type II turning point is passed.

  52. Avatar Ewa Princess says:

    NAME: EWA PRINCESS
    REG NO: 2017/249501
    DEPT: ECONOMICS
    BLOG ADDRESS: blogwithprincess.wordpress.com
    EMAIL ADDRESS: ewaprincess792@gmail.com

    ANSWER:
    1. THE LEWIS-FEI-RANIS MODEL OF LABOUR SUPPLY.
    The Lewis (1954) theory of dualistic economic development provides the seminal contribution to theories of economic development particularly for labour-surplus and resource-poor developing countries. In the Lewis theory, the economy is assumed to comprise the agricultural and non-agricultural sectors. The agricultural sector is assumed to have vast amounts of surplus labour that result in an extremely low, close to zero, marginal productivity of labour. The agricultural wage rate is presumed to follow the sharing rule and be equal to average productivity, which is also known as the institutional wage. The non-agricultural sector has an abundance of capital and resources relative to labour. It pursues profit and employs labour at a wage rate higher than the agricultural institutional wage by approximately 30 percent (Lewis, 1954, p.150). The non-agricultural sector accumulates capital by drawing surplus labour out of the agricultural sector. The expansion of the non-agricultural sector takes advantage of the infinitely elastic supply of labour from the agricultural sector due to its labour surplus. When the surplus labour is exhausted, the labour supply curve in the non-agricultural sector becomes upward-sloping. Ranis and Fei (1961) formalised Lewis’s theory by combining it with Rostow’s (1956) three “linear-stages-of-growth” theory. They disassembled Lewis’s two-stage economic development into three phases, defined by the marginal productivity of agricultural labour. They assume the economy to be stagnant in its pre-conditioning stage. The breakout point marks the creation of an infant non-agricultural sector and the entry into phase one. Agricultural labour starts to be reallocated to the non-agricultural sector. Due to the abundance of surplus agricultural labour, its marginal productivity is extremely low and average labour productivity defines the agricultural institutional wage. When the redundant agricultural labour force has been reallocated, the agricultural marginal productivity of labour starts to rise but is still lower
    than the institutional wage. This marks the shortage point at which the economy enters phase two of development. During phase two the remaining agricultural unemployment is gradually absorbed. At the end of this process the economy reaches the commercialisation point and enters phase three where the agricultural labour market is fully commercialised.
    The Lewis-Fei-Ranis model in relation to the Nigerian economy:
    Having tested the Lewis-Ranis-Fei theory for the Nigerian economy, we have found that Nigeria’s economic growth is mainly attributable to the development of the non-agricultural sector. This is driven by rapid capital accumulation as well as employment growth. The reallocation of labour away from agriculture will make a positive net contribution to Nigeria’s rapid economic growth. The rise in the marginal productivity of agricultural labour indicates the absorption of redundant agricultural labour. However, the marginal productivity of agricultural labour is still lower than the initial low average productivity of agricultural labour. This implies the continued existence of disguised agricultural unemployment. This suggests that the Nigerian economy has entered the Lewis-Ranis-Fei phase two of development but has not yet achieved phase three. The continuing widening productivity gap between the two sectors calls for the removal of market restrictions and government interventions so as to allow the continued absorption of surplus labour. Several policy recommendations are tentatively suggested. First and foremost, more effort should be made in promoting employment to effectively absorb the remaining labour surplus and promote Nigeria’s economic development. This can be achieved by further relaxing the restrictions on migration, increasing labour market flexibility and improving the allocative efficiency of labour. It can also be achieved by encouraging the development of private enterprise to create more employment opportunities. Second, Nigeria’s government should continue implementing the it’s policies, designed to provide rudimentary job training, recruitment information and information about conditions in the destination cities to rural migrants. This will not only help facilitate employment of rural migrants but also satisfy the increasing demand for skilled labour in the growing non-agricultural sector. Third, agriculture could be promoted by tax breaks, direct subsidies and most importantly, by removing price controls on agricultural products. Agriculture could thus be commercialised and the economy would enter phase three of economic development.

    2. HARRIS – TODARO MODEL OF RURAL – URBAN MIGRATION
    The Harris-Todaro model, named after John R. Harris and Michael P. Todaro, is an economic model developed in 1970s and used in development economics and welfare economics to explain some of the issues concerning rural-urban migration. John R. Harris and Michael P. Todaro presented the seminal ‘Two Sector Model’ in American Economic Association, 1970. This model is a pioneering study in the field encompassing rural-urban migration. 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) sectors. The model of rural-urban migration is typically studied in the context of employment and unemployment situation in developing countries. The purpose of the model is to explain the critical urban unemployment problem in developing countries. The key hypothesis of the Harris and Todaro’s model is that economic incentives, earnings differentials, and the probability of getting a job at the destination have influence on the migration decision. In other words, this theory puts forward that rural-urban migration will occur when the urban expected wage exceeds the rural actual wage. The main assumption of the model is that the migration decision is based on the expected income 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.
    In the model, 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 agriculture worker. The model assumes that unemployment is non-existent in the rural agricultural sector. It also assumes that rural agricultural production and the subsequent labour market is perfectly competitive. As a result, the agricultural wage is equal to the 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 Harris-Todaro model produced two powerful policy results. The first concerns the policy of the formal-sector job creation to employ the unemployed (who, in the Harris-Todaro model, are all in the urban sector, because that is where the formal-sector jobs are assumed to be located. Such a policy, they concluded, would increase the formal-sector labour force by more than the number of new jobs created, therby raising the number of urban unemployment. Thus, the solution to urban unemployment is not to create urban employment.
    The second policy option that Harris and Todaro considered was a policy of rural development. If such a program could increase the rural traditional-sector wage, unemployment would then fall. Thus, in the Harris-Todaro model, the solution to urban unemployment is rural development.
    Soon after the model was published, the government of Kenya followed the Harris-Todaro precepts by putting into place an integrated program of rural development. Te result was that unemployment in Kenya fell.
    ASSUMPTIONS
    1. Two sectors: the urban sector (manufacturing) and the rural sector (agriculture)
    2. Rural-urban migration: when urban real wage exceeds real agricultural products
    3. No migration cost
    4. Perfect competition
    5. Cob-Douglas production function
    6. Static approach
    7. Low risk aversion
    Harris-Todaro model explains some issues of rural-urban migration. This migration happens in case when expected urban income is higher than actual rural wages. In this case, an economy may have high rate of unemployment in the urban sector. The equilibrium condition of this model is when expected urban wage is equal to rural wage.
    Therefore, migration from the rural sector to the urban sector will increase if:
    1. Urban wages increase in the urban sector, increasing the expected urban income
    2. Agricultural productivity decreases, lowering marginal productivity and wages in the rural sector, decreasing the expected rural income.
    When government subsidizes the manufacturing sector, Harris-Todaro paradox may happen. Accordingly, jobs creation instead of dealing with unemployment problem actually may cause increase of unemployment. This happens when urban-rural wage differential is high enough, so rural workers move to the urban sectors hoping to find a job with high wage. Obviously, not all these workers succeed in finding jobs which leads to unemployment.

    The Harris Todaro model in relation to the Nigerian economy:
    However, even though this migration creates unemployment and induces informal sector growth, this behavior is economically rational and utility-maximizing in the context of the Harris-Todaro model. As long as the migrating economic agents have complete and accurate information concerning rural and urban wage rates and probabilities of obtaining employment, they will make an expected income-maximizing decision.
    Another issue is that inducing minimum wages creates labour market distortions. Therefore, policy makers in Nigeria should not set the minimum wage rate.
    In addition, simulations showed that different policies’ outcomes depend on elasticity of labour demand in different sectors and on marginal product of labour.
    As Harris and Todaro suggested the first-best policy would be subsidizing manufacturing along with restrictions of rural migration, thus, the Nigerian economy will be better off if it implements the first best policy.

  53. Avatar Abiazia Rufus Chidiebube (2017/243371) says:

    UNIVERSITY OF NIGERIA, NSUKKA
    FACULTY OF SOCIAL SCIENCE
    DEPARTMENT OF ECONOMICS

    AN ASSIGNMENT WRITTEN IN THE PARTIAL FUFUILMENT OF THE COURSE: DEVELOPMENT ECONOMICS 1 (ECO 361).
    TOPIC:
    LEWIS-FEI-RANIS MODEL OF ECONOMIC GROWTH

    BY:
    ABIAZIA RUFUS CHIDIEBUBE
    2017/243371

    LECTURER:
    DR. OLISAEMEKA ACHIME

    MARCH, 2021

    LEWIS-FEI-RANIS MODEL
    INTRODUCTION
    BRIEF HISTORY OF THE LEWIS MODEL:
    The Lewis Model of economic development was developed by Sir. W. Arthur Lewis ( 1915-1991) in 1954. He was a political economics tutor in different universities and the 1950’s he worked with the United Nations. He won a Noble Prize for Economics in 1979.
    Lewis most famous and influential contribution to Economics is undoubtedly the 1954 paper on ” Economic development with unlimited supply of labour”. He called it a “Dual-sector model” by categorising an economy into two, as a traditional and as a modern sector. The traditional sector provided surplus labour to the modern sector and this process led to development stability. He focused mainly on labour reallocation and an organisational dualism, but less on product dualism.

    BRIEF HISTORY OF FEI-RANIS MODEL:
    The model is a dualism model in development economics or welfare economics that has been developed by John. C.H. Fei and Gustave Ranis, it is understood as a extension and modification of the Lewis Model, it is also known as the surplus labour model. It recognizes the presence of a dual economy comprising both the modern and the primitive sector and takes into account the economic situation of unemployment and underdevelopment of resources into account.
    Both sectors coexist in the economy. Development can be obtained by a complete shift in the focal point of progress from the agricultural to the industrial economy. This is done by transfer of labour from the agricultural to industrial sector. Showing that underdeveloped countries do not suffer from constraints of labour supply.
    Surplus labour is the central element in the LEWIS-FEI-RANIS MODEL which based on a “capitalist and a subsistence sector” and it is grouped into three main instruments; labour force, capital accumulation and integration to the world economy.
    The main focus in Lewis Model was on the reallocation of labour until a turning point is reached, economy become fully commercialized.

    COMPARISON WITH OTHER MODELS
    i) Other growth model considers underdeveloped countries to be homogeneous in nature.
    ii) Keynesian (1936) model, focusing on advanced economy cyclical issues. He focused on the temporary unemployment of both capital and labor in the advanced economy, not the secular underemployment of labor in the developing world. Clearly, savings-oriented one-sector models were all the vogue, incorporated in both approaches,
    iii) Lewis rejected the neoclassical assumptions of full employment, market clearance and perfect competition.
    CORE DISCUSSIONS AND THE MAIN ARGUMENT OF THE MODEL:
    This theory is concerned with a poor economy which has following properties:
    (i) There is an abundance of labor in such underdeveloped country and shortage of natural resources.
    (ii) The population growth rate is very high which results in mass unemployment in the economy.
    (iii) The major share of population is engaged in agriculture. But agriculture sector is stagnant. Hence, the marginal productivity of labor is zero and negative in agriculture sector.
    (iv) There are certain non-agrarian sectors in the economy where there is reduced use of capital.
    (v) There is a dynamic industrial sector in the economy.
    THUS THE MODEL SUGGESTS THAT:
    “Economic development would be taking place if agricultural laborers are transferred to industrial sector where their productivity will increase”.
    STAGES OF FEI-RANIS MODEL:
    Fei and Ranis develop their dual economy model with the help of three stages of economic growth. They are presented as:
    Diagram/Figure:

    In the (a) part of the Fig., the labor supply curve is perfectly elastic, as between S and T. In phase (I) as shown in (c) part of Fig., the MPL = 0. In other words AL = MPL = 0. But here APL = AB.
    Following Lewis the FR model argues that AD units of labor are the surplus amount of labor in agricultural sector which is prey to disguised unemployment.
    In phase (II) APL > MPL, but after AD, MPL begins to rise (c part of Fig). The growth of labor force in industrial sector increases from zero to OG (a part of Fig). The APL in agri. sector is shown by BYZ curve (c part of Fig).
    The first stage of FR model is very similar to Lewis. Disguised unemployment comes into being because the supply of labor is perfectly elastic and MPL = 0. Therefore, such disguised unemployed are to be transferred to industrial sector at the constant institutional wage.
    In the second stage of FR model (phase) agri. workers add to agri. output but they produce less than institutional wage they get. In other words, in the second stage the labor surplus exists where APL > MPL, but it is not equal to subsistence (institutional) wages.
    Accordingly, such disguised unemployed also have to be transferred to industrial sector
    In the third stage of FR model the take-off situation comes to an end and there begins the era of self-sustained growth where the farm workers produce more than the institutional wage they get. In this stage of economic growth the surplus labor comes to an end and the agri. sector becomes commercialized sector. All such is explained with the Fig.
    Accordingly, they have to be shifted to industrial sector. As labor is transferred to industrial sector a shortage of labor will develop in agri. sector. As a result, the wages in the industrial sector will rise as from T to Q in (a) part of Fig.
    After point T the turn which occurs in the SZ curve is known as “Lewis Turning Point”. In the 3rd phase the agri. laborers produce more than CIW. (As here MPL > CIW shown in (c) part of Fig). In this phase the take off comes to an end and self-sustained growth starts. This is also known as point of commercialization (of agri.) in FR model.
    The Amount And Time To Re-Allocate Labor Will Depend Upon:
    (i) The rate of growth of industrial capital which depends upon the growth of profits in industrial sector and growth of surplus generated within the agri. sector.
    (ii) The nature and bias of technical progress in industry.
    (iii) The rate of growth of population. It means that the rate of labor transfer must be in excess of the rate of growth of population.
    The Three Phases Of Labor Transfer Are Summarized As:
    In phase I: MPL = 0 and there exists the surplus labor equal to AD.
    In phase II: CIW > MPL > 0 and there exists the open and disguised unemployment equal to AK.
    In phase III: MPL > CIW and the economy is fully commercialized and disguised unemployment is exhausted.
    Criticism:
    (i) According to prof.Jorgenson, he says whether MPL will be zero is an empirical issue. During the seasons of sowing and harvesting the MPL > 0. Jorgenson concluded on the basis of Japanese data even for the pre I world war period the supply of labor was not unlimited.
    (ii) Ignoring the Role of Capital: The FR model concentrated upon land and labor as the determinants of output, ignoring the role of capital.
    (iii) Open Economy: FR model ignored the role of foreign trade as it assumed a closed economy model.
    (iv) Supply of Land in Long Run: FR model assumed that in the process of economic development the supply of land remained fixed. But it is not true. The supply of land can be increased in case of long run.
    (v) Low Productivity in Agricultural Sector: According to Jorgenson it has been observed that there has been a very slow rise in the productivity of agricultural sector. Consequently, the surplus will hardly be created in agricultural.
    Conclusion/Comparison with Real World/Opinion:
    Thus we find that whereas Lewis had failed to offer a satisfactory explanation of this subsistence sector and ignored the real impact of population growth on the choice of capital intensity on the process of surplus labor absorption. Moreover, FR model emphasized upon the simultaneous growth of agricultural and industrial sectors. Thus FR model believes in ‘Balanced Growth’ in the take-off stage. It means that there should be a simultaneous investment in both agricultural sector and industrial sector. According to FR model in the beginning the surplus rises; such surpluses will be available as a capital in the take-offstage. Some part of this surplus will be used in agri. development, while some part will be reploughed in industrial development. As a result, both agri. and industrial sectors will grow under ‘Balanced Growth’ pattern.
    Apparently, Niegeria as case study, the model has fail because the model focuses only on surplus labour and its reallocation to the industrial sector without considering institution-political factors, and effect cause by migration to industrial, agricultural output will decrease which increase price and lead to inflation at the longrun. As such balance growth or equilibrium will be obtained in the economy.
    Thus, three major opinions are highlighted in the FR mode:
    (i) Growth of agriculture is as important as the growth of industry.
    (ii) There should be a balanced growth of agriculture and industrial sectors.
    (iii) Balance growth can be obtain in the economy by equitable distribution of resources ( labour and capital) to both sectors.

    HARRIS-TODARO MODEL
    INTRODUCTION:
    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.
    BASIC ARGUMENTS:
    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.
    It has long been realized that in order for an economy to develop or grow, a large amount of labor has to be transferred from the traditional (or backward) agricultural sector in rural areas, where the productivity of labor is low (or negligible, or zero, or even negative) to the modern manufacturing sector where the productivity of labor is higher and rising due to capital accumulation in that sector.
    The model treats rural-urban migration primarily is an economic phenomenon. In essence, the theory postulates that workers compare the expected incomes in the urban sector with agricultural wage rates and migrate if the former exceeds the latter. Rural-urban migration is thus the equilibrating force which equates rural and urban expected incomes and as such is a disequilibrium phenomenon.o The three basic characteristics of their model–that migration occurs largely for economic reasons, that the migration decision depends on expected ralher than nominal wage differentials, and that migration takes place in dis-equilibrium–suggest that rural-urban migration be given a new emphasis. Rather than considering it as a key phenomenon in its own right, migration could better be regarded as the adjustment mechanism by which workers allocate themselves between different labor markets, some of which are located in urban areas and some in rural areas.
    The structure of the HT model is based on the premise that a fixed wage leads to
    an outbreak of distortion and urban unemployment. By introducing the concept ofexpected wage in the urban sector.

    ASSUMPTIONS OF THE MODEL
    I. The model assumes that unemployment is non-existent in the rural agricultural sector
    ii. There are two sectors, and the rural prices are wholly flexible, which implies that there is full employment in the rural labour market.
    iii. It also assumed that in the urban sector, minimum wage is assumed to be fixed institutionally in a level above equilibrium in it’s lbour market.
    iv. It also assumed that rural agricultural production and the subsequent labour market is perfectly competitive.
    v. The model also assumes that potential migrants are risk neutral where the poor migrants will likely be risk aversive in that they are indifferent between a certain a certain expected rural income and an uncertain expected urban income.
    Conclusion:
    Harris-Todaro model postulated rural-urban labour migration, which it also stipulate that employment on the rural sector is at full employment level. Migration been determined by expected wage differential in urban.
    In Nigeria, rural-urban labour migration is at high speed, as many graduate leaves there rural agricultural sector and migrate to urban industrial sector in search of white collar Jobs over the years. Thus, it have but negative and positive effect in both sectors.
    Negative impact in rural agricultural sector:
    It reduces labour (man power) in the rural areas.
    It reduces production of agricultural products
    It increases cost of agricultural products.
    Positive impact in the rural sector:
    It helps in the introduction of technology in the agricultural sector
    Negative impact in Urban Sector:
    It increases the population of the urban area.
    It increases cost of living.
    It causes job scarcity–many people chasing few job
    It lead to the reduction of wages
    Positive Impact in Urban Sector
    It increases labour supply ( labour force)
    It increases production .

  54. Avatar Ewa Princess says:

    NAME: EWA PRINCESS
    REG NO: 2017/249501
    DEPT: ECONOMICS
    BLOG ADDRESS: blogwithprincess.wordpress.com
    EMAIL ADDRESS: ewaprincess792@gmail.com

    ANSWER:
    1. THE LEWIS-FEI-RANIS MODEL OF LABOUR SUPPLY.
    The Lewis (1954) theory of dualistic economic development provides the seminal contribution to theories of economic development particularly for labour-surplus and resource-poor developing countries. In the Lewis theory, the economy is assumed to comprise the agricultural and non-agricultural sectors. The agricultural sector is assumed to have vast amounts of surplus labour that result in an extremely low, close to zero, marginal productivity of labour. The agricultural wage rate is presumed to follow the sharing rule and be equal to average productivity, which is also known as the institutional wage. The non-agricultural sector has an abundance of capital and resources relative to labour. It pursues profit and employs labour at a wage rate higher than the agricultural institutional wage by approximately 30 percent (Lewis, 1954, p.150). The non-agricultural sector accumulates capital by drawing surplus labour out of the agricultural sector. The expansion of the non-agricultural sector takes advantage of the infinitely elastic supply of labour from the agricultural sector due to its labour surplus. When the surplus labour is exhausted, the labour supply curve in the non-agricultural sector becomes upward-sloping. Ranis and Fei (1961) formalised Lewis’s theory by combining it with Rostow’s (1956) three “linear-stages-of-growth” theory. They disassembled Lewis’s two-stage economic development into three phases, defined by the marginal productivity of agricultural labour. They assume the economy to be stagnant in its pre-conditioning stage. The breakout point marks the creation of an infant non-agricultural sector and the entry into phase one. Agricultural labour starts to be reallocated to the non-agricultural sector. Due to the abundance of surplus agricultural labour, its marginal productivity is extremely low and average labour productivity defines the agricultural institutional wage. When the redundant agricultural labour force has been reallocated, the agricultural marginal productivity of labour starts to rise but is still lower
    than the institutional wage. This marks the shortage point at which the economy enters phase two of development. During phase two the remaining agricultural unemployment is gradually absorbed. At the end of this process the economy reaches the commercialisation point and enters phase three where the agricultural labour market is fully commercialised.
    The Lewis-Fei-Ranis model in relation to the Nigerian economy:
    Having tested the Lewis-Ranis-Fei theory for the Nigerian economy, we have found that Nigeria’s economic growth is mainly attributable to the development of the non-agricultural sector. This is driven by rapid capital accumulation as well as employment growth. The reallocation of labour away from agricultur will make a positive net contribution to Nigeria’s rapid economic growth. The rise in the marginal productivity of agricultural labour indicates the absorption of redundant agricultural labour. However, the marginal productivity of agricultural labour is still lower than the initial low average productivity of agricultural labour. This implies the continued existence of disguised agricultural unemployment. This suggests that the Nigerian economy has entered the Lewis-Ranis-Fei phase two of development but has not yet achieved phase three. The continuing widening productivity gap between the two sectors calls for the removal of market restrictions and government interventions so as to allow the continued absorption of surplus labour. Several policy recommendations are tentatively suggested. First and foremost, more effort should be made in promoting employment to effectively absorb the remaining labour surplus and promote Nigeria’s economic development. This can be achieved by further relaxing the restrictions on migration, increasing labour market flexibility and improving the allocative efficiency of labour. It can also be achieved by encouraging the development of private enterprise to create more employment opportunities. Second, Nigeria’s government should continue implementing the it’s policies, designed to provide rudimentary job training, recruitment information and information about conditions in the destination cities to rural migrants. This will not only help facilitate employment of rural migrants but also satisfy the increasing demand for skilled labour in the growing non-agricultural sector. Third, agriculture could be promoted by tax breaks, direct subsidies and most importantly, by removing price controls on agricultural products. Agriculture could thus be commercialised and the economy would enter phase three of economic development.

    2. HARRIS – TODARO MODEL OF RURAL – URBAN MIGRATION
    The Harris-Todaro model, named after John R. Harris and Michael P. Todaro, is an economic model developed in 1970s and used in development economics and welfare economics to explain some of the issues concerning rural-urban migration. John R. Harris and Michael P. Todaro presented the seminal ‘Two Sector Model’ in American Economic Association, 1970. This model is a pioneering study in the field encompassing rural-urban migration. 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) sectors. The model of rural-urban migration is typically studied in the context of employment and unemployment situation in developing countries. The purpose of the model is to explain the critical urban unemployment problem in developing countries. The key hypothesis of the Harris and Todaro’s model is that economic incentives, earnings differentials, and the probability of getting a job at the destination have influence on the migration decision. In other words, this theory puts forward that rural-urban migration will occur when the urban expected wage exceeds the rural actual wage. The main assumption of the model is that the migration decision is based on the expected income 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.
    In the model, 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 agriculture worker. The model assumes that unemployment is non-existent in the rural agricultural sector. It also assumes that rural agricultural production and the subsequent labour market is perfectly competitive. As a result, the agricultural wage is equal to the 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 Harris-Todaro model produced two powerful policy results. The first concerns the policy of the formal-sector job creation to employ the unemployed (who, in the Harris-Todaro model, are all in the urban sector, because that is where the formal-sector jobs are assumed to be located. Such a policy, they concluded, would increase the formal-sector labour force by more than the number of new jobs created, therby raising the number of urban unemployment. Thus, the solution to urban unemployment is not to create urban employment.
    The second policy option that Harris and Todaro considered was a policy of rural development. If such a program could increase the rural traditional-sector wage, unemployment would then fall. Thus, in the Harris-Todaro model, the solution to urban unemployment is rural development.
    Soon after the model was published, the government of Kenya followed the Harris-Todaro precepts by putting into place an integrated program of rural development. Te result was that unemployment in Kenya fell.
    ASSUMPTIONS
    1. Two sectors: the urban sector (manufacturing) and the rural sector (agriculture)
    2. Rural-urban migration: when urban real wage exceeds real agricultural products
    3. No migration cost
    4. Perfect competition
    5. Cob-Douglas production function
    6. Static approach
    7. Low risk aversion
    Harris-Todaro model explains some issues of rural-urban migration. This migration happens in case when expected urban income is higher than actual rural wages. In this case, an economy may have high rate of unemployment in the urban sector. The equilibrium condition of this model is when expected urban wage is equal to rural wage.
    Therefore, migration from the rural sector to the urban sector will increase if:
    1. Urban wages increase in the urban sector, increasing the expected urban income
    2. Agricultural productivity decreases, lowering marginal productivity and wages in the rural sector, decreasing the expected rural income.
    When government subsidizes the manufacturing sector, Harris-Todaro paradox may happen. Accordingly, jobs creation instead of dealing with unemployment problem actually may cause increase of unemployment. This happens when urban-rural wage differential is high enough, so rural workers move to the urban sectors hoping to find a job with high wage. Obviously, not all these workers succeed in finding jobs which leads to unemployment.

    The Harris Todaro model in relation to the Nigerian economy:
    However, even though this migration creates unemployment and induces informal sector growth, this behavior is economically rational and utility-maximizing in the context of the Harris-Todaro model. As long as the migrating economic agents have complete and accurate information concerning rural and urban wage rates and probabilities of obtaining employment, they will make an expected income-maximizing decision.
    Another issue is that inducing minimum wages creates labour market distortions. Therefore, policy makers in Nigeria should not set the minimum wage rate.
    In addition, simulations showed that different policies’ outcomes depend on elasticity of labour demand in different sectors and on marginal product of labour.
    As Harris and Todaro suggested the first-best policy would be subsidizing manufacturing along with restrictions of rural migration, thus, the Nigerian economy will be better off if it implements the first best policy.

  55. Avatar Likibe Gita Cassandra says:

    NAME: Likibe Gita Cassandra
    REG NO: 2017/241429
    DEPARTMENT: ECONOMICS
    EMAIL ADDRESS: likibegitacassy@gmail.com

    FEI-RANIS MODEL OF ECONOMICS GROWTH
    The Fei–Ranis model of economic growth is a dualism model in developmental economics or welfare economics that has been developed by John C. H. Fei and Gustav Ranis and can be understood as an extension of the Lewis model. It is also known as the Surplus Labor model.[1] It recognizes the presence of a dual economy comprising both the modern and the primitive sector and takes the economic situation of unemployment and underemployment of resources into account, unlike many other growth models that consider underdeveloped countries to be homogenous in nature.[2] According to this theory, the primitive sector consists of the existing agricultural sector in the economy, and the modern sector is the rapidly emerging but small industrial sector.[3] Both the sectors co-exist in the economy, wherein lies the crux of the development problem. Development can be brought about only by a complete shift in the focal point of progress from the agricultural to the industrial economy, such that there is augmentation of industrial output. This is done by transfer of labor from the agricultural sector to the industrial one, showing that underdeveloped countries do not suffer from constraints of labor supply. At the same time, growth in the agricultural sector must not be negligible and its output should be sufficient to support the whole economy with food and raw materials. Like in the Harrod–Domar model, saving and investment become the driving forces when it comes to economic development of underdeveloped countries.
    According to Fei and Ranis, AD amount of labor can be shifted from the agricultural sector without any fall in output. Hence, it represents surplus labor.
    After AD, MP begins to rise, and industrial labor rises from zero to a value equal to AD. AP of agricultural labor is shown by BYZ and we see that this curve falls downward after AD. This fall in AP can be attributed to the fact that as agricultural laborers shift to the industrial sector.

    HARRIS-TODARO MODEL OF MIGRATION
    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. 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 is 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 drive of rural-urban migration, while urban unemployment is local governments’ main concern in many cities.

    Therefore, migration from rural areas to urban areas will increase if:

    Urban wages (wu) increase in the urban sector (le), increasing the expected urban income.
    Agricultural productivity decreases, lowering marginal productivity and wages in the agricultural sector (wr), decreasing the expected rural income.
    However, even though this migration creates unemployment and induces informal sector growth, this behavior is economically rational and utility-maximizing in the context of the Harris–Todaro model. As long as the migrating economic agents have complete and accurate information concerning rural and urban wage rates and probabilities of obtaining employment, they will make an expected income-maximizing decision.

  56. Avatar NAME:URAMA SAMSON CHIBUEZE, REG NO:2017/249591 ,ECO MAJOR says:

    HARRIS-TODARO MODEL OF MIGRATION AND UNEMPLOYMENT
    The Harris-Todaro model, named after John R. Harris and Michael Todaro, is an economic model developed in 1970 and used in development economics used to explain rural-urban migration. The main assumption of the model is that the migration decision is based on expected differential between rural and urban areas rather than just wage differentials. Since the wage in cities is higher than one in village people migrate into the cities hoping to get urban job. The probability to get a job depends on the size of unemployment pool in relation to the number employed in industries. Therefore, in many mostly less-developed countries urban unemployment is a big issue. W. Max Corden in his book Trade Policy and Economic Welfare claims that the possible reason for urban unemployment is the wage differential. This coexists with usually high minimum wage in industries and with a marginal product of labor in agriculture less than the urban minimum wage1 The model presented is derived from Migration, Unemployment and Development: Corden’s book mentioned above. In our approach we will assume as Harris and Todaro did that the expected urban wage is equal to the average wage of both urban employed and unemployed. Authors’ main claim is that the best policy to improve employment is to protect agricultural sector rather that manufacturing sector of the country.

    Harris-Todaro model of urban unemployment, discuss two cases:
    1) subsidizing manufacturing
    2) subsidizing agriculture, and test Harris and Todaro’s claim.
    GENERAL ASSUMPTIONS;
    1. Two sectors: urban (manufacture) and rural (agriculture)Rural-urban migration condition: when urban real wage exceeds real agricultural product
    2. No migration cost
    3. Perfect competition
    4. Cobb-Douglas production function.

    THE EXPECTED URBAN WAGE AND THE UNEMPLOYMENT POOLThere are two sectors: agriculture and manufacturing. Each sector has a specific factor (agriculture – land, manufacturing – capital) and labor which is mobile between these two sectors. In this model we assume that prices of agricultural and manufacturing goods are constant. The horizontal axis shows total labor force. The marginal product curves are LL’ for agriculture and MM’ for manufacturing. O*W is the fixed minimum wage in manufacturing, and corresponding employment is given at NO*. According to Harris and Todaro’s approach in equilibrium the expected urban wage must be equal to the agriculture wage. We draw a rectangular hyperbola through J and let it intersect LL’ at R. This gives agricultural wage OV and rural employment OG. The remained part GN will be an unemployment pool. Manufacturing wage-bill NJWO* rectangular area is spread over the whole urban labor force, and we get the expected urban wage GR, which is the average of the minimum wage O*W received by the employed and the zero wage received by the unemployed. Since two shaded areas are equal.

    SUBSIDIZING EMPLOYMENT IN MANUFACTURING
    When we subsidize manufacturing as it can be seen by QJ’ per man we expand manufacturing output by N’N. The shaded area N’QJN is the value of extra output in manufacturing. Then we draw a new rectangular hyperbola R’J’, and get the new equilibrium allocation. Labor in agriculture declines by G’G, and the output also declines by the area of the shaded area G’R’RG. So we need to compare the two shaded areas in order to measure effect on total output. This depends on the size of the unemployment pool. The flatter the slope of LL’ and steeper the slope of MM’, the bigger number of the unemployment people and lower real output (image)

    Can we restore full employment subsidizing manufacturing? Yes. More and more workers will leave agriculture increasing marginal product in agriculture till it reaches the fixed minimum wage in industry. Here both wages are equalized, so there will be no unemployment. In Figure 2, agricultural output declines by OG’’. Because marginal product of labor in manufacturing will be below that in agriculture, this would not be first-best solution, and not even second-best solution. However, a very low wage subsidy may maximize real output.

  57. Avatar OJI SAMUEL NKEMAKOLAM says:

    Name: Oji Samuel Nkemakolam
    Reg no: 2017/249548
    Department: Economics

    Lewis-Fei-Ranis Model (Surplus labour theory)
    Two economists, by name, John Fei and Gustav Ranis presented their dual economy model which is an improvement on Lewis model. Fei-Ranis (FR) model of dual economy explains how the increased productivity in the agricultural sector would become helpful in promoting the industrial sector in the evonomy.Thus, this model is treated as an improvement over Lewis model of unlimited supply of labor. They observed the Lewis model by reading it from left to right and assessed the changes in the output and wage as more people moved from agriculture to the industry. A new concept was added – namely, disguised unemployment, which appears in the traditional subsistence sector (primitive sector). It acknowledges the presence of a dual economy comprising both the modern and the primitive sector and takes the economic situation of unemployment and underemployment of resources into account. Some of the basic thesis of the model are:
    I. The growth rate of population is high which results in mass unemployment.
    II. The industrial sector is dynamic.
    IV. Natural resources are scarce and there is an abundance of labour.
    V. There are certain non-agrarian sectors in the economy where there is reduced use of capital.
    There are three stages in this model which are:
    Stage one: The first stage of the FR model is very similar to Lewis. Disguised unemployment comes into being because the supply of labor is perfectly elastic and MPL = 0. Therefore, such disguised unemployment are to be transferred to industrial sector at the constant institutional wage.
    Stage two: In the second stage of the FR model, agricultural workers add to agricultural output but they produce less than the institutional wage they get. In other words, the labor surplus exists where APL > MPL, but it is not equal to subsistence (institutional) wages. Accordingly, such disguised unemployed also have to be transferred to industrial sector. If the migration to industrial sector continues a situation is eventually reached where the farm workers produce output equal to institutional wages. This would mean that productivity in agricultural sector has gone up. With this, the third phase starts.
    Stage three: In the third stage of the FR model, the take-off situation comes to an end and there begins the era of self-sustained growth where the farm workers produce more than the institutional wage they get. In this stage of economic growth the surplus labor comes to an end and the agricultural sector becomes a commercialized sector.
    Some of the criticisms of the Lewis-fei-Ranis model includes:
    I. The model ignored the role of foreign trade as it assumed a closed economy model.
    II. MPL is zero in the model but Prof. Jorgenson who has also presented a dual economy model says that the MPL is an empirical issue. During good farming seasons, the MPL > 0.
    III.The model holds that MPL is zero in the first phase of growth and the transfer of labor from agriculture would not reduce output in the agricultural sector in phase I but some other economists like Berry insists that agricultural output in phase I will not remain constant and can be affected by different land conditions.
    IV. The model assumed that in the process of economic development, the supply of land remains fixed but this is not so. Land supply can be increased in the long run.
    In conclusion, the Fei-Ranis Model is one of dualism. The model believes in the simultaneous growth of the agricultural and investment sector because it accelerates economic development in the economy. In real life, this model is significant amd realistic, the two sectors of the model, agricultural and industrial sector, exists real life and efforts are normally made to speed up development of the two sectors. Labour also move from the agricultural sector into the industrial sector without the agricultural sector being ignored.

    HARRIS-TODARO model of migration
    The Harris–Todaro model was named after John R. Harris and Michael Todaro. It is an economic model of migration developed in the year 1970 and used in development economics to explain the concept of rural-urban migration. The main hypothesis of Harris and Todaro are that migrants react mainly to economic incentives, earnings differentials, and the probability of getting a job at the destination have influence on the migraton decision.
    Rural to urban migration does not equate the wage differences between the two labor markets as designated by demand and supply fundamentals. The reason is the lack of full employment in urban areas. The probability of finding a job in an urban area is never 100%. In other words, the urban labor market never fully clears due to institutionally determined urban wages; there will always be unemployment. This provides a technical rational to the reason why there is rural to urban migration amidst unemployment.
    The model assumes the following:
    I. A two sector economy (urban and rural also seen as manufacturing and agricultural sectors respectively).
    II. To move from one sector to another, there is little or no marginal cost.
    III. The two sectors are perfectly competitive.
    The following are the critiques of the Harris Todaro model
    I. The Harris-Todaro model is a static model describing migration, which is a dynamic phenomenon by nature.
    II. The assumption that urban workers are either employed in the manufacturing sector or unemployed has been criticized as too simplistic even though, it was implicit that unemployment could also be interpreted as underemployment in the informal sector.
    III. The influence on decision making of risk and risk attitudes on the part of the potential immigrants is not included;
    IV. Differences in skill levels among the migrants are not accounted for.
    In conclusion, the model examines the concept rural-urban migration. This migration occurs as a result of rational decision makers comparing urban expected income with wage in rural areas. The equilibrium condition of this model is when expected rural wage is equal to rural wage. It is also explains the idea of urban unemployment which is referred to as the Todaro Paradox. This model, which seem incomplete at first, has been advanced and improved upon by latter economists increasing its analytic, predictive and prescriptive power.

  58. Avatar Okwuchie Amos says:

    Name : Okwuchie Amos
    Reg. Number: 2017/249562
    Email: Okwuchieamos@gmail.com

    LEWIS-FEI-RANIS MODEL (SURPLUS LABOUR)
    The Lewis (1954) Model was the first model to explicitly focus on dualist economic development. The original Lewis model was simple yet genius with the clarity he expressed his ideas, nearly every development model is some way related to the roots of the Lewis Model. The Lewis model understood that in most LDC’s, most workers are in the rural/agricultural sector. Agricultural sector in these nations are not endowed with capital with high productivity like agricultural sectors in the developed nations. Agricultural sector in the LDC’s are mostly family farms characterized by low productivity and uncertain output. This assumption made by Arthur Lewis is valid in most LDC’s; every development model after the Lewis model has used some form of the assumptions made by
    Arthur Lewis
    ASSUMPTIONS OF LEWIS-FEI-RANIS MODEL (SURPLUS LABOUR)
    1. There is traditional and urban sector.
    2. Labour are perfectly mobile.
    3. Markets are perfectly competitive.
    4. Diminishing returns of factors
    5. There is downward rigid wage
    SUMMARY OF THE MODEL
    The Lewis Dual Sector model of development
    This is based on structural change theory which explains the mechanism of changing structure of underdeveloped economic from subsistence agriculture to more modern and more urbanized.
    This model became the general theory of development process for surplus labour nation during 1960s and early 1970s.
    Lewis model consist of two sectors which are traditional sector and modern sector and modern sector.
    TRADITIONAL SECTOR: This sector is the overpopulated subsistent sector where marginal marginal productivity of labour is zero. Due to zero marginal productivity, it is possible to withdraw labour from this sector without affecting the level of output. This is why it is classified as the surplus labour sector.
    MODERN SECTOR: This sector is urban, industrial sector. Productivity is high in this sector. Labour is gradually transferred into this sector from traditional sector.
    The movement of labour from traditional to modern sector bring expansion in both output and employment. The speed of this expansion depends on
    1. Rate of industrial investment and capital accumulation which ultimately depends on the level of profit. Lewis assume that all profit are reinvested.
    2. Wage difference between the rural and urban sector.
    According to Lewis, there should be at least 30 percent higher wage rate in the urban sector than rural sector in order to transfer labour automatically from rural to urban sector.
    Lewis assume that there is perfectly competitive labour market in modern sector giving fixed wage rate and horizontal supply of labour. In other hand wage rate in traditional sector is given average productivity of labour (w = APPL = TP/L).
    On the other hand, the labour surplus theory is concerned with poor economy that is the under developing countries. The main argument of the model is focused on the following backgrounds.
    There is an abundance of labour in under developed countries and shortage of natural resources.
    The population growth rate is very high which results in mass unemployment in the economy.
    There is a dynamic industrial sector in the economy.
    There are certain non-agrarian sectors in the economy where there is reduced use of capital.
    The major share of population is engaged in agriculture. But agriculture sector is stagnant. Hence, the marginal productivity of labour is zero and negative in agricultural sector. The situation where MPL-0, labour can be transferred to industrial sector without any loss in agricultural output. The real wages in industrial sector remains fixed and it is equal to the initial level of real income in agricultural sector. Such wages are given the name of institutional wages.
    From the focal point above, the Lewis-Fei-Ranis theory of dualistic economic development provides the primary contribution to theories of economic development particularly for labour-surplus and resource for poor developing countries. In the Lewis theory, the economy is assumed to comprise the agricultural and non-agricultural sectors. The agricultural sector is assumed to have vast amounts of surplus labour that result in an extremely low, close to zero, marginal productivity of labour. The agricultural wage rate is presumed to follow the sharing rule and be equal to average productivity, which is also known as the institutional wage. While the non-agricultural seems to be the obverse of the agricultural sector
    HOW THE LEWIS-RANIS-FEI MODEL OF SURPLUS LABOUR RELATE TO NIGERIA ECONOMY.
    Mr President, it should interest you to know that Nigeria is operating under the above model, since the model applies to developing countries. Hence Nigeria happens to be one of the developing countries.
    In sum, Nigeria has two sector economy, the urban and rural sector. These two sectors have their labour. But there is excess or surplus labour in the rural area. It therefore needs that the surplus labour be transferred to the urban area. The urban area is the industrialized and can absorb the excess labour. Checking the existing scenario in Nigeria economy, we can observe that we are operating on this model. But we need to invest in both sectors so as to speed up development.
    To conclude, I have shown the main ideas behind the Lewis-Ranis-Fei model and used the consecutive analysis of the model to explain why it is important to invest in both sectors in order to remain on the balanced growth path and maintain the rate of industrialization. The existence of surplus labour in agriculture allows the industry to continue to pay the institutional wage and therefore enjoy further profits and continued investment. At the same time, as more and more people are moving away from agriculture, there will be some amount of agricultural surplus that can be used up to fuel further development. This process continues until the surplus labour is absorbed. Hence, saving and investment are a crucial part in the Lewis-Ranis-Fei to support economic development.

    HARRIS – TODARO MODEL OF MIGRATION
    The Harris-Todaro (H-T) model is based on the experiences of Less Developed Countries (LCDs) facing the problems of rural-urban migration and urban unemployment.
    The key contribution of this model to the field of development economics is by making the migration process a rational choice based on expected earnings, that is, labour migration is as a result of rural-urban differences in average expected wages. Here, the minimum urban wage is substantially higher than the rural wage. Also, if additional employment opportunities are created in the urban sector at the minimum wage, the expected wage shall rise and rural-urban migration on the other hand shall be induced resulting to increasing levels of urban employment. Harris and Todaro suggest a subsidised minimum wage through a lumpsum tax.
    BASIC ASSUMPTIONS OF HARRIS-TODARO MODEL
    The Harris-Todaro model is based on the following assumptions;
    There are two sectors in the economy; the rural or agricultural sector (A) and the urban or manufacturing sector (M).
    The model operates in the short run
    Capital is available in fixed quantities (K-) in the two sectors.
    There are N workers in the economy with NA and NM numbers employed in the rural and urban sectors respectively.
    The urban wage if fixed at WM and the rural wage at WA, such that WM > WA.
    The rural wage equals the rural marginal product of labour, and the urban wage is exogenously determined.
    Rural-urban migration continues as long as the expected urban real income is more than the real agricultural income (by making rational decision)
    There is perfect competition among producers in both sector
    The price of the agricultural good is determined directly by the relative quantity of the two goods produced in both the sectors.
    SUMMARRY OF THE MODEL
    The Harris-Todaro (1970) elaborated the basic two sector model of rural-urban labour migration. It takes most of Lewis model’s assumptions as given, such as the rural sector being characterised by subsistence agriculture, and the urban sector being characterised by modernised industries. However, the Harris-Todaro model takes a standard two-sector model and imposes a higher wage in the urban sector which is higher than equilibrium clearing, while wage in the agriculture is flexible. The equilibrium clearing is simply when wage across both sectors equalize, minus movements costs or natural advantages (such as better living environment) in one of the sectors. By imposing this higher wage in the urban sector, we no longer have market clearing wage which gives the workers in the rural sector an incentive to migrate to the urban sector. These migrant workers are not guaranteed to find a job in the urban sector. There is a probability that they will end being unemployed or in the informal sector.
    Less Developed Countries (LDCs) are unlikely to have good social safety nets such as welfare benefits, unemployment benefits, and old age security. If the migrants were unable to find a job in the urban formal sector, which is the modern industrial sector, they would be forced to work in the informal sector to themselves alive. The informal sector is very primitive; work in this sector is labour intensive with little or no capital endowment.
    The equilibrium condition of the Harris-Todaro model can be described as the wage in rural (agricultural) sector must be equal to the expected wage in the urban sector. The model in its most basic form ignores disutility from not being at home farm, or cost of mobility, but these omissions do not change the essence of the model, the only implication of this is a downward shift of the urban sector’s expected returns.
    HOW THE MODEL RELATE TO NIGERIAN ECONOMY.
    Mr president, the Harris-Todaro model of migration is a typical scenario obtained in the Nigerian economy where those in the rural area migrate to the urban area for greener pasture where the wages are higher than as obtained in the rural agricultural sector.
    Consequently, there is high unemployment in the urban area in Nigeria today because of the perceived better life in the city (urban area). But the cost of living in the urban area leads to balance in the cost of living in the rural area when the high cost of living in the urban area is accounted for.

  59. Avatar Uwode Joy Ogheneyonle says:

    NAME: Uwode Joy Ogheneyonle
    DEPARTMENT: Economics
    REG NO: 2017/241451
    EMAIL: yonlejoyuwode@gmail.com

    Harris_todaro Model of Migration
    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. 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.

    Lewis_Fei_Ranis Model of Economic Growth

    The Fei–Ranis model of economic growth is a dualism model in developmental economics or welfare economics that has been developed by John C. H. Fei and Gustav Ranis and can be understood as an extension of the Lewis model. It is also known as the Surplus Labor model. It recognizes the presence of a dual economy comprising both the modern and the primitive sector and takes the economic situation of unemployment and underemployment of resources into account, unlike many other growth models that consider underdeveloped countries to be homogenous in nature. According to this theory, the primitive sector consists of the existing agricultural sector in the economy, and the modern sector is the rapidly emerging but small industrial sector. Both the sectors co-exist in the economy, wherein lies the crux of the development problem. Development can be brought about only by a complete shift in the focal point of progress from the agricultural to the industrial economy, such that there is augmentation of industrial output. This is done by transfer of labor from the agricultural sector to the industrial one, showing that underdeveloped countries do not suffer from constraints of labor supply. At the same time, growth in the agricultural sector must not be negligible and its output should be sufficient to support the whole economy with food and raw materials. Like in the Harrod–Domar model, saving and investment become the driving forces when it comes to economic development of underdeveloped countries.

  60. Avatar Nwobodo Emmanuel Chimobi says:

    Reg Number: 2017/243818
    Department: Economics
    Course: Eco 361

    The Lewis-Fei-Ranis model of economic growth is a two way model in development economics which has been propounded by John C.H Fei and Gustav Ranis and can be clearly understood as an extension of the Lewis Model. It can also be referred to as a Surplus Labour Model (SLM). Lewis divided labour force into two different categories namely; i) The subsistence sector and ii) The capitalist sector
    Some of the assumptions are:
    *Constant returns to scale in industrial sector
    *Existence of surplus labour in subsistence sectors

    The Harris Todaro model of migration was named after John R Harris and Michael Todaro. It is an economic model developed in the year 1970 and used to explain some issues concerning rural-urban migration or agricultural-industrial migration
    Some of the assumptions are:
    * Unemployment is non-existent in rural agricultural sector causing rural wage to be equal to agricultural marginal productivity
    * Rate of migration flow from Rural, that is agricultural areas to urban, that is industrial areas is determined by the difference between urban wage and rural wage.

  61. Avatar Okwuchie Amos says:

    Name: Okwuchie Amos
    Reg. Number: 2017/249562
    Email: Okwuchieamos@gmail.com

    LEWIS-FEI-RANIS MODEL (SURPLUS LABOUR)
    The Lewis (1954) Model was the first model to explicitly focus on dualist economic development. The original Lewis model was simple yet genius with the clarity he expressed his ideas, nearly every development model is some way related to the roots of the Lewis Model. The Lewis model understood that in most LDC’s, most workers are in the rural/agricultural sector. Agricultural sector in these nations are not endowed with capital with high productivity like agricultural sectors in the developed nations. Agricultural sector in the LDC’s are mostly family farms characterized by low productivity and uncertain output. This assumption made by Arthur Lewis is valid in most LDC’s; every development model after the Lewis model has used some form of the assumptions made by
    Arthur Lewis
    ASSUMPTIONS OF LEWIS-FEI-RANIS MODEL (SURPLUS LABOUR)
    1. There is traditional and urban sector.
    2. Labour are perfectly mobile.
    3. Markets are perfectly competitive.
    4. Diminishing returns of factors
    5. There is downward rigid wage
    SUMMARY OF THE MODEL
    The Lewis Dual Sector model of development
    This is based on structural change theory which explains the mechanism of changing structure of underdeveloped economic from subsistence agriculture to more modern and more urbanized.
    This model became the general theory of development process for surplus labour nation during 1960s and early 1970s.
    Lewis model consist of two sectors which are traditional sector and modern sector and modern sector.
    TRADITIONAL SECTOR: This sector is the overpopulated subsistent sector where marginal marginal productivity of labour is zero. Due to zero marginal productivity, it is possible to withdraw labour from this sector without affecting the level of output. This is why it is classified as the surplus labour sector.
    MODERN SECTOR: This sector is urban, industrial sector. Productivity is high in this sector. Labour is gradually transferred into this sector from traditional sector.
    The movement of labour from traditional to modern sector bring expansion in both output and employment. The speed of this expansion depends on
    1. Rate of industrial investment and capital accumulation which ultimately depends on the level of profit. Lewis assume that all profit are reinvested.
    2. Wage difference between the rural and urban sector.
    According to Lewis, there should be at least 30 percent higher wage rate in the urban sector than rural sector in order to transfer labour automatically from rural to urban sector.
    Lewis assume that there is perfectly competitive labour market in modern sector giving fixed wage rate and horizontal supply of labour. In other hand wage rate in traditional sector is given average productivity of labour (w = APPL = TP/L).
    On the other hand, the labour surplus theory is concerned with poor economy that is the under developing countries. The main argument of the model is focused on the following backgrounds.
    There is an abundance of labour in under developed countries and shortage of natural resources.
    The population growth rate is very high which results in mass unemployment in the economy.
    There is a dynamic industrial sector in the economy.
    There are certain non-agrarian sectors in the economy where there is reduced use of capital.
    The major share of population is engaged in agriculture. But agriculture sector is stagnant. Hence, the marginal productivity of labour is zero and negative in agricultural sector. The situation where MPL-0, labour can be transferred to industrial sector without any loss in agricultural output. The real wages in industrial sector remains fixed and it is equal to the initial level of real income in agricultural sector. Such wages are given the name of institutional wages.
    From the focal point above, the Lewis-Fei-Ranis theory of dualistic economic development provides the primary contribution to theories of economic development particularly for labour-surplus and resource for poor developing countries. In the Lewis theory, the economy is assumed to comprise the agricultural and non-agricultural sectors. The agricultural sector is assumed to have vast amounts of surplus labour that result in an extremely low, close to zero, marginal productivity of labour. The agricultural wage rate is presumed to follow the sharing rule and be equal to average productivity, which is also known as the institutional wage. While the non-agricultural seems to be the obverse of the agricultural sector
    HOW THE LEWIS-RANIS-FEI MODEL OF SURPLUS LABOUR RELATE TO NIGERIA ECONOMY.
    Mr President, it should interest you to know that Nigeria is operating under the above model, since the model applies to developing countries. Hence Nigeria happens to be one of the developing countries.
    In sum, Nigeria has two sector economy, the urban and rural sector. These two sectors have their labour. But there is excess or surplus labour in the rural area. It therefore needs that the surplus labour be transferred to the urban area. The urban area is the industrialized and can absorb the excess labour. Checking the existing scenario in Nigeria economy, we can observe that we are operating on this model. But we need to invest in both sectors so as to speed up development.
    To conclude, I have shown the main ideas behind the Lewis-Ranis-Fei model and used the consecutive analysis of the model to explain why it is important to invest in both sectors in order to remain on the balanced growth path and maintain the rate of industrialization. The existence of surplus labour in agriculture allows the industry to continue to pay the institutional wage and therefore enjoy further profits and continued investment. At the same time, as more and more people are moving away from agriculture, there will be some amount of agricultural surplus that can be used up to fuel further development. This process continues until the surplus labour is absorbed. Hence, saving and investment are a crucial part in the Lewis-Ranis-Fei to support economic development.

    HARRIS – TODARO MODEL OF MIGRATION
    The Harris-Todaro (H-T) model is based on the experiences of Less Developed Countries (LCDs) facing the problems of rural-urban migration and urban unemployment.
    The key contribution of this model to the field of development economics is by making the migration process a rational choice based on expected earnings, that is, labour migration is as a result of rural-urban differences in average expected wages. Here, the minimum urban wage is substantially higher than the rural wage. Also, if additional employment opportunities are created in the urban sector at the minimum wage, the expected wage shall rise and rural-urban migration on the other hand shall be induced resulting to increasing levels of urban employment. Harris and Todaro suggest a subsidised minimum wage through a lumpsum tax.
    BASIC ASSUMPTIONS OF HARRIS-TODARO MODEL
    The Harris-Todaro model is based on the following assumptions;
    There are two sectors in the economy; the rural or agricultural sector (A) and the urban or manufacturing sector (M).
    The model operates in the short run
    Capital is available in fixed quantities (K-) in the two sectors.
    There are N workers in the economy with NA and NM numbers employed in the rural and urban sectors respectively.
    The urban wage if fixed at WM and the rural wage at WA, such that WM > WA.
    The rural wage equals the rural marginal product of labour, and the urban wage is exogenously determined.
    Rural-urban migration continues as long as the expected urban real income is more than the real agricultural income (by making rational decision)
    There is perfect competition among producers in both sector
    The price of the agricultural good is determined directly by the relative quantity of the two goods produced in both the sectors.
    SUMMARRY OF THE MODEL
    The Harris-Todaro (1970) elaborated the basic two sector model of rural-urban labour migration. It takes most of Lewis model’s assumptions as given, such as the rural sector being characterised by subsistence agriculture, and the urban sector being characterised by modernised industries. However, the Harris-Todaro model takes a standard two-sector model and imposes a higher wage in the urban sector which is higher than equilibrium clearing, while wage in the agriculture is flexible. The equilibrium clearing is simply when wage across both sectors equalize, minus movements costs or natural advantages (such as better living environment) in one of the sectors. By imposing this higher wage in the urban sector, we no longer have market clearing wage which gives the workers in the rural sector an incentive to migrate to the urban sector. These migrant workers are not guaranteed to find a job in the urban sector. There is a probability that they will end being unemployed or in the informal sector.
    Less Developed Countries (LDCs) are unlikely to have good social safety nets such as welfare benefits, unemployment benefits, and old age security. If the migrants were unable to find a job in the urban formal sector, which is the modern industrial sector, they would be forced to work in the informal sector to themselves alive. The informal sector is very primitive; work in this sector is labour intensive with little or no capital endowment.
    The equilibrium condition of the Harris-Todaro model can be described as the wage in rural (agricultural) sector must be equal to the expected wage in the urban sector. The model in its most basic form ignores disutility from not being at home farm, or cost of mobility, but these omissions do not change the essence of the model, the only implication of this is a downward shift of the urban sector’s expected returns.
    HOW THE MODEL RELATE TO NIGERIAN ECONOMY.
    Mr president, the Harris-Todaro model of migration is a typical scenario obtained in the Nigerian economy where those in the rural area migrate to the urban area for greener pasture where the wages are higher than as obtained in the rural agricultural sector.
    Consequently, there is high unemployment in the urban area in Nigeria today because of the perceived better life in the city (urban area). But the cost of living in the urban area leads to balance in the cost of living in the rural area when the high cost of living in the urban area is accounted for.

  62. Avatar Okoronkwo Emmanuel Ositadinma. Reg No:2017/242433. Department: Economics says:

    A. LEWIS-FEI-RANIS ECONOMIC GROWTH THEORY
    Lewis-Fei-Ranis Model is concern with double economic system (agricultural/traditional sector and industrial/modern sector), it emphasis on how excess unproductive labour from the traditional (agricultural) sector is being absolved by the modern (industrial) sector. The theory is called Lewis-Fei-Ranis model because it was originally initiated by W. Arthur Lewis and was brought into modern view by John C. H. Fei and Gustav Ranis. Fei and Ranis work is the extension of Lewis theory.
    From the model, the agricultural sectors dominate the developing/underdeveloped countries while the industrial sectors are major feature in the developed country. When excess or surplus labour from agricultural sector is transferred to industrial sector which has less labour it facilitates the development of a country. If the labour four becomes higher in the industrial sectors than the agricultural sectors, then one can say the country has advanced.
    Relating the model to the real world (using Nigeria as a case study) and viewing it applicability:
    Nigeria economy is majorly characterized by agricultural sectors though the industrial sectors also exist but they are very few. From the above model, the main determinant of a developed nation is the ability of a country to shift its surplus unproductive labour in the agricultural sectors to the industrial sectors. But is this applicable in Nigeria, NO, this is because the government of Nigeria has shown little or zero interest in development of industrial sectors which can only bring about the validity of the model in the country. Even our so called oil sector has the highest impact in the country’s GDP is being neocolonized by the industrialized countries, corruption and nepotism is the order of the day for politicians, everyone collecting his or her own national cake. In summary, the government of Nigeria has not created the enabling environment that will ensure excess labour in the traditional sectors are move to industrialized sectors.

    B. HARRIS-TODARO MODEL OF MIGRATION
    The theory was named after the two economists John R. Harris and Michael Todaro. It was propounded in 1970. The major position of the theory is that migration decision is based on expected (not actual) differential between the urban sector and the rural sector. From the model, the reason for migration is based on the employment opportunities in the rural and urban sector and the interests of individual to go for the one with greater expected wage.
    some major assumption of the model includes:
    1. There exist long run equilibrium when the expected urban wage equates the rural wage.
    2. Fixed amount of labour and capital.
    3. Unemployment (labour unemployment) exist in the urban sector.
    4. There exists equal chance of employment for all labour in the urban sector.
    5. Reason for rural-urban migration is because the expected higher wage in urban sectors.
    Relating this model to Nigeria economy in order to checked its validity in developing countries:
    From the model we can deduce that the determinant of rural-urban migration is the expected higher wage in the urban areas. In Nigeria it is well observed that individuals move to the urban sectors because they believe that greater opportunities and employment with high wage exist in the urban areas. Also it is inherent in nature that individuals will always migrate to urban sectors in search of greener pasture.

  63. Avatar Nwobodo Christian Chukwuemeka says:

    Name: Nwobodo Christian Chukwuemeka
    Reg. No: 2017/241437
    Department: Economics
    Email Address: justicextiano@gmail.com

    ANSWER
    Harris-Todaro Migration Theory
    The migration theory developed by John H. Harris and Michael Todaro is an economic model that assumes that migration decision is based on the expected difference between the income of rural and urban areas rather than just wage differentials.
    The model assumes that the primary reason why people migrate from rural to urban areas is due to the high-income level prevalent in the urban areas.

    Assumptions of the Model
    The economy has two sectors of urban (manufacture) and rural (agriculture).
    Rural-urban migration exists when urban real wage exceeds real agricultural product.
    No migration cost.
    Perfect competition in the economy.
    Cobb-Douglas production function.

    Impact of the Theory on Nigeria
    In the case of Nigeria, the assumptions of the Harris-Todaro model are very much significant given that a lot of people have migrated from the rural areas into the urban areas of the country in order to seek for higher paying jobs in manufacturing companies or greener pasture.
    Thus, the assumptions of the Harris-Todaro model of migration holds true in Nigeria and many developing economies.
    Lewis Fei-Ranis Model
    The Lewis-Fei-Ranis model of a dual-sector economy tries to explain the relationship that exists between the traditional and modern sector of a nation’s economy. It explains the conditions that results in rural to urban migration of surplus labour between the agricultural to industrial sector of a two-sector economy. The models extensively describe how surplus labour migrates between the traditional and industrial sectors of an economy.
    The Fei-Ranis Model was an improvement on the Lewis Model of economic growth as developed by two economists, John Fei and Gustav Ranis. They built upon the Lewis model by evaluating the criticism of the Lewis and making the needed improvements on the model. The flaw of the Lewis model comes from its lack of attention to the role of the agricultural sector in bringing about industrial growth in the developing economy.
    The Fei-Ranis (FR) model of a two-sector economy explains how increase in productivity of the agricultural sector would help in promoting the growth of the agricultural sector. The Fei-Ranis model is also known as the Surplus Labor Model.
    Application of the Lewis-Fei-Ranis Model in Nigeria
    In Nigeria, the rural agricultural sector is very much predominant as family members. Family members work together and share the value of their output. In the case of Nigeria, there exist surplus labour. The presence of surplus labour in the traditional sector will lead to an expansion in the modern sector without increasing labour cost. This will continue till the surplus labour of the traditional sector is used up.

    • Izuogu Chioma Sylverline
      2017/244598
      Education Economics

      Lewis-Fei-Ranis Model (Surplus labour theory)
      The theory of unlimited supplies of labour by Professor W. Arthur Lewis is a systematic classical theory of economic development which is based on the existence of two sectors in the economy of developing countries- the modern and the traditional sectors. The modern sector is small and uses considerable amounts of capital, while the traditional sector is the large labour surplus rural agricultural sector, with little amount of capital.
      The argument is that poor countries have two sectors (the rural agricultural or subsistence sector and the modern industrial or capitalist sector) and that the wage level in the sector with unlimited supply of labour (rural sector) is at its subsistence. In addition to that, it is also believed that the marginal productivity of this surplus labour is zero and as such the economy is backward. Lewis argues that if this surplus labour can be transferred to the sector that has few labour supplies (the modern sector), the productivity level in the agricultural sector would not experience any noticeable reduction but rather, economic development would take place because labour would be put to good use bringing about a chain of productive reactions. Arthur in his article on “Economic Development with unlimited supplies of labour” has a model called the dual sector- model enumerated in it and the model was named in Lewis’s honor. To understand the theory better, the underlining assumptions of the model will be discussed in the next section.

      The Assumptions of the Model
      The following are the assumptions of the model:
      (i) Existence of dual Economy: There exist a two sector economy characterised by a traditional, over-populated agricultural rural subsistence sector with zero Marginal Productivity of Labour(MPL), and the ‘capitalist’ sector which is the high productive modern industrial sector represented by the manufacturing, mining activities.
      (ii) Elasticity of Labour: According to Arthur, the supply of labour is perfectly elastic. In other words, the supply of labour is greater than demand for labour in the agricultural sector and therefore the capitalist sector can have as much labour as it requires and will continue to absorb this surplus from the agricultural sector until there is no longer surplus labour left.
      (iii) Reproducible Capital: The subsistence sector does not make use of ‘Reproducible Capital’, while the modern sector uses the produced means of capital. As a result of the non usage of reproducible capital in the subsistence sector, output per head is lower than in the capitalist sector.
      (iv) The model also assumes that the wages in the manufacturing sector are higher than those of the subsistence sector and are also more or less fixed.
      (v) Entrepreneurs in the manufacturing sector make profit because they charge a price above the fixed wage rate
      (vi) There is the willingness of the capitalist to reinvest the profit in
      the business and this is done in the form of fixed capital. The main people/sources from which workers would be coming for employment at the subsistence wage as economic development proceeds are “the farmers, the casual workers, small scale informal sector participants, women in the household, and population growth.

      Basic Thesis of the Lewis Model
      The Lewis model is a classical type model based on the assumption of a dual sector economy which are the capitalist sector and the subsistence sector. The subsistence sector is that part of economy which does not use reproducible capital and therefore, the output per head is lower than in the capitalist sector. Also there is perfectly elastic supply of labour at the subsistence sector in many underdeveloped countries but not in themodern sector. Lewis is of the opinion that the industrial and advanced modern sector can be developed and made to boost the entire economy, this according to him, can be done by transferring the surplus labour from traditional sector to the modern sector. From this surplus labour now in the modern sector, new industries will spring up and existing ones would grow. However, the capitalist sector requires skilled labour and this stands as a stumbling block to the development process as the surplus labour from the subsistence sector are mostly unskilled. This problem can be eliminated by providing training facilities to unskilled workers. So in essence, the absence of skilled labour in this sector is a temporary problem which can be solved through training.
      Lewis says that the wages in industrial sector remain slightly higher than that of the agricultural sector. Consequently, labour will be attracted to the modern sector because of the higher wage incentives and as a result of this, the capitalists will earn surplus from the increase in productivity brought about by the surplus labour transferred. Such surplus will be re-invested in the modern sector leading thereby to further increase in the productivity of this sector. In this way, the surplus labour or the labour which were prey to disguised unemployment will get to be employed into productive activities. Thus both the labour transfer and modern sector employment growth are brought about by output expansion in the modern sector. The speed with which this expansion occurs is determined by the rate of industrial investment and capital accumulation in the modern sector. Here is a diagrammatical explanation of Lewis Model

      QUANTITY OF LABOUR
      Diagramatic Representation of Lewis Model
      In this diagram, the horizontal axis (x) represents the quantity of labour employed, while the vertical axis (y) represents the wage rate/Marginal Productivity of Labour. Also in the diagram, OS represent average subsistence wage in the agricultural sector, and OA the capitalist wage, the supply of labour is unlimited and this is shown by the horizontal supply curves of labour AW and Sw. The analysis goes thus: The marginal productivity of labour in the industry is M1P1, with OL1 labour employed , OAKL1 wage rate is paid from the total product of OM1KL1, giving the capitalist a profit of AM1K. With the reinvestment of this profit, the marginal productivity of labour of labour increases from M2P2 and then further reinvestment brings it to M3P3 and so on. As the capitalist continues to reinvestment his profit, his surplus continues to grow. Overtime, as the transition continues and the capitalist continues to reinvest surplus derived from the use of surplus labour from the subsistence sector, the capital stock increases, the marginal productivity of workers in the manufacturing sectors will be driven up by capital formation. Capital formation resulting from this increase in investment leads to quicker utilisation of surplus labour. As more labour is supplied, the marginal productivity falls, and in the long run, the wage rates of the agricultural and manufacturing sectors will equalise because as workers leave the agricultural sector for the manufacturing sector, they increase marginal productivity and wages in agricultural sector while reducing them in manufacturing. The process of modern self sustaining growth and employment expansion will continue till all the surplus rural labour is absorbed in the new industrial sector. Thereafter, additional workers can be withdrawn from agricultural sector only at a higher cost of lost of food production because this will decrease the labour to land ratios. In this way, the MPL will no more be zero and the labour supply curve will become positively sloped along with the growth of modern sector.

      CRITICISMS OF THE THEORY
      Despite the theory’s huge success in identifying the two key sectors in the developing countries and stating how growth can be achieved in these usually over populated countries, most of the theory’s assumptions do not fit into the institutional and economic realities of the Developing countries and as such can be said to be irrelevant to these countries.
      Below are some of the flaws of the theory.
      (i) The industrial real wage continues to rise and is not constant as Lewis assumes
      (ii) There is the likelihood of the capitalist reinvesting in labour saving techniques like investments in machineries and this would reduce the amount of labour needed causing urban unemployment.
      (iii) Lewis ignored the balanced growth between agricultural sector and industrial sector. But we know that there, exists a linkage between agricultural growth and industrial expansion in poor countries. If a part of profits made by capitalists is not devoted to agricultural sector, the process of industrialisation would be jeopardised (perhaps, due to reduced supply of raw material).
      (iv) Lewis model underestimates the full impact on the poor economy of a rapidly growing population, i.e., its effects on the capitalist profit share, wage rates and overall employment opportunities.
      (vi) Lewis has ignored the role which the leakages can play in the economy. As Lewis assumed that all increases in profits are
      diverted into savings. It means that the savings of producers is equal to 1. But, this is unrealistic as the increase in profits may accompany an increase in consumption.
      (vii) Lewis assumed that the transfer of unskilled labour from the subsistence agricultural sector to the industrial sector is regarded as almost smooth and costless. The model however fails to take account of the cost of educating and training rural workers for urban employment and also, there is also other indirect cost associated with rural-urban migration. Amongst these are: a lack of sufficient housing, leading to the development of squatter townships or shanty towns, pressure on social infrastructure such as schools and hospitals, increases in disease due to a lack of clean water and sanitation.

      CONCLUSION
      Arthur Lewis theory of economic development is a structural change theory which explains the mechanism of changing structure of underdeveloped economies from the subsistence rural sector to a modern urbanised one. According to the theory, the economies of most developing countries are made up of two key sectors, the subsistence agricultural sector and the modern capitalist sector. Lewis is of the opinion that economic development occurs when the capitalist gets labour from the unlimited supply of labour in the subsistence sector, which it uses to set up new industries and also grow existing ones. The capitalist gets profit from the activities of the surplus labour and according to Lewis, the capitalist reinvests this profits and this sets off a growth process that continues until there is no longer surplus labour to be absorbed. The theory was criticised by some scholars and one major criticism raised is that the transition from rural sector to urban sector does not come without cost like the theory would like us to.
      However, despite the criticisms, the theory still helps to point us to the reality of the existence of the overpopulated subsistence agricultural sector and a modern capitalist sector in most underdeveloped countries. The way we go about developing these sectors to achieve a balanced growth in the economy (which the theory was criticised for not doing) was latter addressed by Fei-Ranis.

      HARRI-TODARO MODEL OF MIGRATION

      Starting from the assumption that migration is based primarily on privately rational economic calculations despite the existence of high urban unemployment, the Todaro model postulates that migration proceeds in response to urban-rural differences in expected rather than actual earnings. The fundamental premise is that as decision-makers migrants consider the various labor-market opportunities available to them as, say, between the rural and urban sectors, choosing the one that maximizes their “expected” gains from migration. Expected gains are measured by the difference in real incomes between rural and urban work opportunities and the probability of a new migrant’s obtaining urban job. A schematic framework describing the multiplicity of factors affecting the migration decision is portrayed in figure 34.4. While the factors illustrated in figure 34.4 include both economic and noneconomic variables, the economic ones are assumed to predominate. The “thought process” of the Todaro model can be explained as follows. Suppose the average unskilled or semiskilled rural worker has a choice between being a farm laborer (or working his own land) for an annual average real income of, say, 50 units per year, and migrating to the city where a worker with his skill or educational background can obtain wage employment yielding an annual real income of, say, 100 units. The more traditional economic models of migration that place exclusive emphasis on the income differential factor as the determinant of the decision to migrate would indicate a clear choice in this situation. The worker should seek the higher-paying urban job. It is important to recognize, however, that these migration models were developed largely in the context of advanced industrial economies and, as such, implicitly assumed the existence of full or near-full employment in urban areas. In a full-employment environment the decision to migrate can in fact be predicated solely on securing the highest-paying job wherever it becomes available, other factors being held constant. Simple economic theory would then indicate that such migration should lead to a reduction in wage differentials through geographic changes in supply and demand, both in areas of out-migration (where incomes rise) and in points of in-migration (where they fall).
      Unfortunately, such an analysis is not very realistic in the context of the institutional and economic framework of most Third World nations. First of all, these countries are beset by a chronic and serious problem of urban surplus labor, so that many migrants cannot expect to secure highpaying urban jobs immediately upon arrival. In fact, it is much more likely that upon entering the urban labor market many migrants will either become totally unemployed or will seek casual and part-time employment in the urban traditional sector for some time.
      Consequently, in his decision to migrate the individual must in effect balance the probabilities and risks of being unemployed or underemployed for a considerable period of time against the positive urban-rural real-income differential. That it is possible for our hypothetical migrant to earn twice as much annual real income in an urban area as in his rural environment may be of little consequence if his actual probability of securing the higher-paying job within a year is one chance in five. In such a situation the migrant’s actual probability of being successful in securing the higher-paying urban job is 20%, so that his “expected” urban income for the one-year period is in fact 20
      units, not the 100 units that a migrant in a full-employment urban environment might expect to receive. Thus, with a one-period time horizon and a probability of success of 20% it would be irrational for this migrant to seek an urban job even though the differential between urban and rural earnings capacity is 100%. On the other hand, if the probability of success were, say, 60%, so that the expected urban income is 60 units, it would be entirely rational for such a migrant with his one-period time horizon to try his luck in the urban job “lottery” even though urban unemployment may be extremely high.

  64. Avatar ONOYIMA CYNTHIA OLUCHI says:

    Onoyima Cynthia Oluchi
    2017/244902
    Library and information science
    Cynthia.onoyima.244902@unn.edu.ng

    An essay on lewis Fei Ranis model of economic growth and Harris Todaro model of migration

    Introduction
    Harris and Todaro’s rural-urban two sector migration model was an academic investigation to throw light on the events following ‘Tripartite Agreement’ in Kenya. The newly independent Kenya in the 1960s was increasingly facing a serious situation of unemployment in the major urban cities. To cope with the situation of unemployment, Tripartite Agreement was signed between the government public sector and the private sector. The agreement increased employment in the industrial jobs in exchange for unions agreeing to hold wages at their current levels. The larger number of employment was expected to reduce unemployment, but it appeared that the urban unemployment had increased following the government’s agreement. Harris and Todaro subsequently formulated a model to explain rural-urban economic preferences to migrate. The distinctive concept in the model is that the rate of migration flow from rural (agricultural) areas to urban (industrial) areas is determined by the difference between expected urban wages and rural wages.
    The Rural-Urban Two-Sector Model Centrally Holds The Following Futures:
    1) Real wages (adjusted for cost-of-living differences) were higher in urban formal sector jobs than in rural traditional sector jobs.
    2) Tobe hired for a formal sector job, it was necessary to be physically present in the urban areas where the formal sector jobs were located.
    3) Consequently, from the first two features, more workers searched for formal sector jobs than were actually hired. Employers hired some of the searchers but not all of them.
    4) To maintain equality between the expected wage associated with searching for an urban job and the expected wage associated with taking up a lower-paying rural job, the equilibrium arising in such a setting would be characterized by urban unemployment.
    5) Any temporary difference in the expected wages between one sector and another would be eroded as workers migrate from the low expected wage labour market to the high expected wage one.
    Functional Model
    There are two regions: rural (agricultural) and urban (industrial) in two sector economic model. The crucial assumption of the Harris and Todaro’s model is that workers base their migration decision on their expected incomes at urban (industrial) areas. As the basic model is static, the expected income is just the weighted average of the urban wage and the unemployment benefit, the weights being the probabilities to find and not to find an urban job. The model assumes that the rate of rural-urban (m= M/LR) is a function of: i)The probability that an urban labour can successfully find a modern sector job, which can be expressed as a positive function of the current urban employment rate EU/LU, or LU-EU/LU, a negative function of urban unemployment rate. ii) The urban-rural real income differential is expressed as- YU/YR= W (W greater than 1), Besides, migration will also be related to, iii) Other factors (Z), such as distance, personal conduct, urban amenities. Where m= Rate of migration from rural to urban areas M= Actual volume of rural-urban migration LR= Rural labour force EU= Level of urban employment
    LU= Urban labour force YU= Urban real income YR=Rural real income W= Ratio between rural/urban real income Therefore, the basic rural-migration migration model is expressed as: (rural-urban migration) m = function of (current urban employment rate, urban-rural real income differential, and personal factors). Thus, (rural-urban migration rate) m= f (EU /LU, W,Z) …. 1.1 = f (EU /LU) (holding W and Z constant) = Function of the ratio between the level of urban employment and urban labour force. Where f (EU /LU) is greater than Zero; f (W) is greater than Zero, and f (Z) may have +ve or – ve values; (here fis the time derivative of three elements) That is, migration rate is a function of the ratio between the level of urban employment and urban labour force, or the probability to find a job in an urban industrial sector. Besides, urban labour force growth can be expressed as: lU/LU=r + LR/LU(m)= r + LR/LU f (EU/LU) ..1.2 r= natural growth rate of rural/urban labour force lU= time derivative of LU (urban labour force) That is, time derivative of urban labour force growth rate is a function of urban labour force growth rate and the probability of finding a job in a modern urban sector (as derived from equation 1.1 above) 1.4. Discussion The model, then tried to compare the live path of equation (1.1) or (1.2) with the growth rate of urban employment, and discussed rural-urban migration and urban employment under the different assumption of population and employment growth rates.
    Discussion
    The fundamental contribution of Harris and Todaro’s rural-urban two sector migration model was to build a model that fit the stylized facts of the labour market. On the lines of the theory, developing countries such as Nigeria, adopted program on integrated rural development which encouraged an increase in the rural traditional sector wage. The theory proves that the higher the unemployment rate, the lower is the probability of new migrants from the countryside actively seeking formal sector employment who are unable to find it. The significant findings of the theory are: first,if the expected urban wage equals rural income, there is no incentive to migrate. Second, if the expected urban wage is greater than rural income, there is a great incentive to move from rural to urban area. Third, if the expected urban wage is less than rural incomes, there would be an incentive to move in other direction. Fourth, the expected urban wage depends on what type of job migrant is engaged in. Therefore,the Haris Todaro’smodel helps policy-makers to avoid two mistakes. One is to assume that development efforts should necessarily be channeled to the sectors where the poor are. The other is to assume that efforts should necessarily be focused on getting the poor out of the sectors in which they presently are.
    Limitation
    Some of the assumptions of the Harris-Todaro’s model were judged to be too restrictive.The model also assumes that potential migrants are risk neutral where the poor migrants will likely be risk averse, as in they are indifferent between a certain expected rural income and an uncertain expected urban income of the same magnitude. The assumption that there exists a perfect competition in rural agriculture sector is not realistic.
    Conclusion
    Harris Todaro model explains some issues of rural-urban migration. This migration happens in case when expected rural income is higher than rural wages. In this case economy may have high rates of unemployment. The equilibrium condition of this model is when expected rural wage is equal to rural wage. When government subsidize manufacturing sector Harris Todaro paradox may happen. According to the authors job creation instead of dealing with unemployment problem actually may cause increase of unemployment. This happens when urban-rural wage differential is high enough, so rural workers move to the cities hoping to find a job with high wage. Obviously, not all these workers succeed in finding jobs which leads to unemployment. Another issue is that inducing minimum wages creates labor market distortions. Therefore, policy makers should not set the minimum wage rates. In addition, simulations showed that different policies’ outcomes depend on elasticity of labor demand in different sectors and on marginal product of labor. As Harris and Todaro suggested the first-best policy would be subsidizing manufacturing along with restrictions of rural migration.

  65. Avatar ODO DORIS KOSISOCHI says:

    Name: odo doris kosisochi
    Reg no: 2017/249542
    Email: kosisochidoris@gmail.com

    HARRIS TODARO MODEL OF RURAL-UBARN MIGRATION.
    INTRODUCTION
    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 is 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. 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 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.

    Assumptions of the model
    1. Harris and Todaro [1] studied the migration of workers in a two-sector economic system, namely, rural sector and urban sector. The difference between these sectors are the type of goods produced, the technology of production and the process of wage determination. The rural sector is specialized in the production of agricultural goods. The productive process of this sector can be described by a Cobb-Douglas production function.
    2. Where Ya is the production level of the agricultural good, Na is the amount of workers used in the agricultural production, Aa > 0 and 0 < f 0 and 0 < a 0 and g > 0 are a parametric constants. g is the elasticity of p with respect to the ratio Ym/Ya.
    6. The overall population of workers in the economy is N, which is kept constant during the whole period of analysis. By assumption there are only two sectors and rural prices are wholly flexible, which implies that there is full employment in the rural area, i.e., all workers living at the rural sector are employed at any period. Then at any period the following equality is verified.
    Conclusion
    Therefore, migration from rural areas to urban areas will increase if: Urban wages (wu) increase in the urban sector (le), increasing the expected urban income.
    Agricultural productivity decreases, lowering marginal productivity and wages in the agricultural sector (wr), decreasing the expected rural income.
    However, even though this migration creates unemployment and induces informal sector growth, this behavior is economically rational and utility-maximizing in the context of the Harris–Todaro model. As long as the migrating economic agents have complete and accurate information concerning rural and urban wage rates and probabilities of obtaining employment, they will make an expected income-maximizing decision. The model explains internal migration in China as the regional income gap has been proved to be a primary drive of rural-urban migration, while urban unemployment is local governments’ main concern in many cities.From my observations on the I can say that migration occurs only when there is rational economic consideration, and migration is basically taking place on the value of the expected urban wage rate rather than on the actual wage rate. The expected urban wage rate depends on the probability of getting a job in the urban sector is positively related to urban employment.
    LEWIS-FEi-RANIS MODEL OF ECONOMIC GROWTH
    INTRODUCTION
    Lewis based his model in dual economy divided into a capitalist and traditional sector. The distinction of Lewis from other economists is that he regards surplus labour as marginal productivity of labour is negligible, zero, or even negative with respect to human beings rather man-hours (Lewis, 1954). Lewis in his model of “Development with Unlimited Supplies of Labour“ represented a growth model of early industrialization in developing countries over the long run, which is now regarded as canonical to development economics (Fitzgerald, 2004). After Lewis set up his model, it has been criticised theoretically and empirically by many economists. Ted Schultz (1964) is one of those who empirically vigorously attacked Lewis model by introducing evidence from India to show that there was no increase in acreage sown crops observed during 1918-1919 even though there were high death rates because of epidemics. Harris and Todaro (1970) theoretically were object to Lewis`s model. They suggested that rural migrants might flow to cities in excess of a “warranted rate” due to high expected unevenness in living standards between rural and urban areas. Labour surplus was thought by Lewis with respect to human beings rather man-hours. In this essay, I will focus on the weaknesses and limits of Lewis model by grouping his proposition under three main headings. These are labour supply, capital accumulation and integration to the world economy. The first section gives a basic background of the model; the weaknesses of the model will be given in a way of critical viewpoint in the second section, the third section focus on current theoretical and policy relevance in his model and the last section summarises main findings with concluding remarks.
    WEAKNESSES AND LIMITATIONS IN LEWIS MODEL
    Labour force
    Lewis model has challenged theoretical and empirical evidences from South eastern Asia and Latin America by many economists. In particular, Ted Schultz heavily criticized Lewis model by providing empirical results from India in which Lewis based his model on the over￾populated in Indian rural areas. What Schultz (1964) questions if marginal productivity of labour in agricultural sector is negligible, zero. His proofs dates back to 1918-1919 when there were a serious deathly epidemics caused many people`s life in rural areas. Should the doctrine of marginal product is zero that is true; the acreage sown crops should have been increased due to the declining population. But this did not happen and agricultural productivity declined in those years. As far as the distinction between hired and non-hired labour is concerned, the marginal product of family labour can hardly be zero if workers are hired, nor can the marginal product of the hired workers themselves be zero if they are paid (Thirlwall, 1994). Theoretical basis of the Lewis model was challenged by Harris and Todaro (1970) who suggested that rural migrants might flow to cities in excess of a “warranted rate” due to high expected inequalities in living standards between rural and urban areas. There is a clear distinction between the classical and the neo-classical stages for two reasons (Knight, 2007); spatial heterogeneity which mean some regions experience about scarcity before others and imperfect labour mobility that the supply price of rural labour is more likely to rise gently than to jump sharply, so that the supply curve to urban sector will curve upwards gradually. The voluntary of workers between geographical areas is the primary equilibrating force in the labor markets of LDCs (Fields, 1975).The formal sector real wage may be determined by non-market forces at a level that is above the market-clearing wage. The efficiency wage, labour turnover, and profit-sharing theories of wages, as well as institutional or bargained wage determination, are all contenders. But additional migration, by increasing unemployment, reduces the earnings of all migrants already in the urban labour force by a factor (1 -R), where R is the fraction of the total urban labour force supplied by the rural sector.(Harris and Todaro, 1970). Fields (1975) underlined educated workers who might preferred by industry. If highly educated workers are hired preferentially for modern sector jobs, the urban unemployment rate will be lower than if workers were hired randomly without regard to educational attainment. This is because preferential hiring reduces the number of jobs available to the uneducated, thereby lowering the probability of finding an urban job and inducing large numbers of them to remain in or move back to agriculture.It is not possible to equate the agricultural sector with the rural sector or the informal sector nor industry with urban or formal. Rural industry can be an important source of employment and the urban informal sector can be an important store of surplus labour.
    CONCLUSIONS
    Surplus labour is the central element in Lewis model which is based on a “capitalist and a “subsistence” sector which are called later as a modern and a traditional sector in his revisited work of dual economy in 1979 (Lewis, 1954; 1979). Lewis model can be grouped under three instruments; labour force, capital accumulation and integration to the world economy. The main focus in Lewis`s model was on the reallocation of labour until the turning point is reached, i.e., the time when labour reallocation has outstripped population growth long enough for dualism to atrophy and the economy to become fully commercialized. Lewis implicitly showed that the traditional sector do not produce any capital accumulation as they are very small and poor. Trade between agriculture and industry as the supply or marketed food falls or the demand for it rises, or both causing the value of marginal product of labour in agriculture to rise.

  66. Avatar OKOYECHUKWU CHIOMA AUGUSTINA, REG NO: 2017/244837. says:

    NAME: OKOYECHUKWU CHIOMA AUGUSTINA
    REG NO: 2017/244837
    DEPT: EDUCATION/ECONOMICS

    A SUMMARY OF HARRIS TODARO MODEL OF MIGRATION AND LEWIS-FEI RANIS MODEL OF ECONOMIC GROWTH

    1. HARRIS TODARO MODEL OF MIGRATION.
    Since the wage in cities is higher than one in village people migrate into the cities hoping to get urban job. The probability to get a job depends on the size of unemployment pool in relation to the number employed in industries. Therefore, in many mostly less-developed countries urban unemployment is a big issue. W. Max Corden in his book Trade Policy and Economic Welfare claims that the possible reason for urban unemployment is the wage differential. This coexists with usually high minimum wage in industries and with a marginal product of labor in agriculture less than the urban minimum wage.
    John R. Harris and Michael P. Todaro presented the seminal ‘Two sector model’ in American Economic Association, 1970. This model is a pioneering study in the field encompassing rural-urban migration. 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 situation 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 model is that economic incentives, earnings differentials, and the probability of getting a job at the destination have influence on the migration decision. In other words, this theory puts forward that rural-urban migration will occur when the urban expected wage exceeds the rural obtain wage.
    HARRIS TODARO MODEL OF MIGRATION EXPLAINED (ITS ARGUMENTS)
    The rural-urban two-sector model centrally holds the following features:
    1) Real wages (adjusted for cost-of-living differences) were higher in urban formal sector jobs than in rural traditional sector jobs.
    2) To be hired for a formal sector job, it was necessary to be physically present in the urban areas where the formal sector jobs were located.
    3) Consequently, from the first two features, more workers searched for formal sector jobs than were actually hired. Employers hired some of the searchers but not all of them.
    4) To maintain equality between the expected wage associated with searching for an urban job and the expected wage associated with taking up a lower-paying rural job, the equilibrium arising in such a setting would be characterized by urban unemployment.
    5) Any temporary difference in the expected wages between one sector and another would be eroded as workers migrate from the low expected wage labour market to the high expected wage one.
    ASSUMPTIONS OF HARRIS TODARO MODEL OF MIGRATION
    There are two regions: rural (agricultural) and urban (industrial) in two sector economic model.
    The Assumptions are:
    Migration is a primarily economic decision.
    There is no unemployment in the rural sector and it is perfectly competitive such that wage is equal to marginal product
    Members of the labor force rationally compare the expected value of potential wages to current wages to make the decision to migrate or not.
    The crucial assumption of the Harris and Todaro’s model is that workers base their migration decision on their expected incomes at urban (industrial) areas. As the basic model is static, the expected income is just the weighted average of the urban wage and the unemployment benefit, the weights being the probabilities to find and not to find an urban job. The model assumes that the rate of rural-urban (m= M/LR) is a function of:
    The probability that an urban labour can successfully find a modern sector job, which can be expressed as a positive function of the current urban employment rate EU/LU, or LU-EU/LU, a negative function of urban unemployment rate.
    ii) The urban-rural real income differential is expressed as- YU/YR= W (W greater than 1),
    Besides, migration will also be related to, iii) other factors (Z), such as distance, personal conduct, urban amenities. Where m= Rate of migration from rural to urban areas. M= Actual volume of rural-urban migration LR= Rural labour force EU= Level of urban employment.
    LU= Urban labour force YU= Urban real income YR=Rural real income W= Ratio between rural/urban real income Therefore, the basic rural-migration migration model is expressed as: (rural-urban migration) m = function of (current urban employment rate, urban-rural real income differential, and personal factors). Thus, (rural-urban migration rate) m= f (EU /LU, W, Z)…. 1.1 = f (EU /LU) (holding W and Z constant) = Function of the ratio between the level of urban employment and urban labour force. Where f (EU /LU) is greater than Zero; f (W) is greater than Zero, and f (Z) may have +ve or – ve values; (here fis the time derivative of three elements). That is, migration rate is a function of the ratio between the level of urban employment and urban labour force, or the probability to find a job in an urban industrial sector.
    Besides, urban labour force growth can be expressed as: lU/LU=r + LR/LU(m)= r + LR/LU f (EU/LU) ..1.2 r= natural growth rate of rural/urban labour force lU= time derivative of LU (urban labour force)
    That is, time derivative of urban labour force growth rate is a function of urban labour force growth rate and the probability of finding a job in a modern urban sector (as derived from equation 1.1 above)
    The model, then tried to compare the live path of equation (1.1) or (1.2) with the growth rate of urban employment, and discussed rural-urban migration and urban employment under the different assumption of population and employment growth rates.
    CONTRIBUTIONS OF THE MODEL
    The fundamental contribution of Harris and Todaro’s rural-urban two sector migration model was to build a model that fit the stylized facts of the labour market. On the lines of the theory, developing countries adopted program on integrated rural development which encouraged an increase in the rural traditional sector wage. The theory proves that the higher the unemployment rate, the lower is the probability of new migrants from the countryside actively seeking formal sector employment who are unable to find it. The significant findings of the theory are:
    First, if the expected urban wage equals rural income, there is no incentive to migrate.
    Second, if the expected urban wage is greater than rural income, there is a great incentive to move from rural to urban area.
    Third, if the expected urban wage is less than rural incomes, there would be an incentive to move in other direction.
    Fourth, the expected urban wage depends on what type of job migrant is engaged in.
    Therefore, the Harris Todaro’s model helps policy-makers to avoid two mistakes. One is to assume that development efforts should necessarily be channeled to the sectors where the poor are. The other is to assume that efforts should necessarily be focused on getting the poor out of the sectors in which they presently are.
    However, wages in the urban sector are always higher than the market clearing equilibrium level due to factors such as unionization of workers and government policies such as minimum wage, pension plans, and unemployment benefits. Additionally, firms choose to set wages higher than other options in order to attract higher quality workers and fire workers who prove to be inferior. In essence, they buy an incentive for productivity. Because of this, wages in the urban sector are always set higher than market equilibrium and wages in the rural sector are conversely lower than equilibrium due to the surplus of labor this wage premium created.
    LIMITATIONS
    Some of the assumptions of the Harris-Todaro’s model were judged to be too restrictive.The model also assumesthat potential migrants are risk neutral where the poor migrants will likely be risk averse, as in they are indifferent between a certain expected rural income and an uncertain expected urban income of the same magnitude. The assumption that there exists a perfect competition in rural agriculture sector is not realistic.
    The model results in an ex ante equilibrium but not ex post, since those who migrate and are unemployed or employed at a lower wage in the informal sector are not better off.
    Assumes subjects are risk-neutral when in reality, most people are risk-averse. However, the model can be easily adjusted to reflect this. In a risk-averse version of the Todaro Model, less migration occurs, causing the agricultural sector to be larger. The level of risk aversion is reflected in the difference between the informal sector wage and the formal sector wage.
    CONCLUSION
    Harris Todaro model explains some issues of rural-urban migration. This migration happens in case when expected rural income is higher than rural wages. In this case economy may have high rates of unemployment. The equilibrium condition of this model is when expected rural wage is equal to rural wage. When government subsidize manufacturing sector Harris Todaro paradox may happen. According to the authors job creation instead of dealing with unemployment problem actually may cause increase of unemployment. This happens when urban-rural wage differential is high enough, so rural workers move to the cities hoping to find a job with high wage. Obviously, not all these workers succeed in finding jobs which leads to unemployment. Another issue is that inducing minimum wages creates labor market distortions. Therefore, policy makers should not set the minimum wage rates. In addition, simulations showed that different policies’ outcomes depend on elasticity of labor demand in different sectors and on marginal product of labor. As Harris and Todaro suggested the first-best policy would be subsidizing manufacturing along with restrictions of rural migration.

    2. LEWIS-FEI RANIS MODEL
    The FeiRanis model of economic growth is a dualism model in developmental economics or welfare economics that has been developed by John C. H. Fei and Gustav Ranis and can be understood as an extension of the Lewis model. It is also known as the Surplus Labor model. It recognizes the presence of a dual economy comprising both the modern and the primitive sector and takes the economic situation of unemployment and underemployment of resources into account, unlike many other growth models that consider underdeveloped countries to be homogenous in nature.
    According to this theory, the primitive sector consists of the existing agricultural sector in the economy, and the modern sector is the rapidly emerging but small industrial sector. Both the sectors co-exist in the economy, wherein lies the crux of the development problem. Development can be brought about only by a complete shift in the focal point of progress from the agricultural to the industrial economy, such that there is augmentation of industrial output. This is done by transfer of labor from the agricultural sector to the industrial one, showing that underdeveloped countries do not suffer from constraints of labor supply. At the same time, growth in the agricultural sector must not be negligible and its output should be sufficient to support the whole economy with food and raw materials.
    MAIN ARGUMENTS OF THE MODEL
    A . Lewiss Model of Rural-Urban Migration:
    Prof. W. Arthur Lewis in his article, Unlimited Supplies of Labour has explained the process of migration from rural to urban areas in an underdeveloped economy.
    An underdeveloped economy is a dual economy having two sectors:
    (i) a modern sector, and
    (ii) an indigenous sector.
    Out of these two, the latter is the predominant sector. The capitalist sector is defined as that part of the economy which uses reproducible capital, pays capitalists for the use thereof and employs wage labour for profit making purposes.The distinguishing feature of a capitalist sector is that it hires labour and sells output to earn profit. The subsistence sector is that part of the economy which does not use reproducible capital. Labour is abundant and disguised unemployment is the result. The marginal productivity of labour in the agricultural sector may be zero or even negative. In order to solve the problem of disguised unemployment.
    Prof. Lewis would like the capitalist (industrial) sector to be expanded by transferring labour from the subsistence (rural) sector to the capitalist sector. He assumes that the supply of labour is perfectly elastic at the subsistence wage.
    Since the supply of labour is unlimited, new industries can be established or existing industries can be expanded without limit at the current wage i.e. subsistence wage by withdrawing labour from the subsistence sector. When people migrate from the subsistence sector to the modern sector, the wages should be higher in the capitalist sector than in the subsistence sector by a small but fixed amount.
    SOME ASSUMPTIONS AND CRITICISMS
    The Lewis model of migration has been criticised on the following counts:
    1. Wage Rate not constant in the Capitalist Sector:
    The theory assumes a constant wage rate in the capitalist sector until the supply of labour is exhausted from the subsistence sector. This is unrealistic because the wage rate continues to rise over time in the industrial sector of an underdeveloped economy even when there is open unemployment in its rural sector.
    2. Not Applicable if Capital Accumulation is Labour Saving: Lewis assumes that the capitalist surplus is reinvested in productive capital. But according to Reynolds, if the productive capital happens to be labour saving, it would not absorb labour and the theory breaks-down.
    3. Skilled Labour not a Temporary Bottleneck: Given an unlimited supply of labour, Lewis assumes the existence of unskilled labour for his theory. Skilled labour is regarded as a temporary bottleneck which can be removed by providing training facilities to unskilled labour. No doubt skilled labour is in short supply in underdeveloped countries but skill formation poses a serious problem, as it takes a very long time to educate and train the multitudes in such countries.
    4. One-sided Theory: This is a one-sided theory because Lewis does not consider the possibility of progress in the agricultural sector. As the industrial sector develops with the transfer of surplus labour, the demand for food and raw materials will rise which will, in turn, lead to the growth of the agricultural sector.
    5. Mobility of Labour not so Easy: Higher capitalist wage will not lead to the movement of surplus labour from the subsistence sector to the capitalist sector. People are so intensely attached to their family and land that they do not like to leave their kith and kin. Moreover, differences in language and custom, the problems of congestion, housing and high cost of living in the capitalist sector stand in the way of mobility of labour of this sector. This is the weakness of the theory.
    B.The Fei-Ranis Model on Rural-Urban Migration:
    John Fei and Gustav Ranis have presented in an article entitled, A Theory of Economic Development, the process of rural-urban migration in underdeveloped countries.The model is related to an underdeveloped economy having surplus labour but scarcity of capital. The major part of the population is engaged in agriculture which is stagnant. Non-agricultural occupations use small capital. There also exists an industrial sector.The process of development involves transfer of surplus labour from the agricultural sector to the industrial sector, so as to increase its productivity from zero to a wage level equal to the institutional wage in agriculture.
    ASSUMPTIONS
    The assumptions of the theory are:
    1. Land is fixed in supply.
    2. Population growth is taken as an exogenous phenomenon.
    3. There is a dual economy consisting of a stagnant agricultural sector and an active industrial sector.
    4. Agricultural activity is characterised by constant returns to scale with labour as a variable factor.
    5. The output of the agricultural sector is a function of land and labour alone.
    6. The output of the industrial sector is a function of capital and labour alone.
    7. Workers in both the sectors consume only agricultural products.
    8. If population increases above the point where marginal productivity of labour becomes zero, labour can be shifted to the industrial sector without loss in agricultural output.
    9. The real wage in the industrial sector remains fixed and is equal to the initial level of real income in the agrarian economy, which they call the institutional wage.
    THE MODEL: ARGUMENTS
    Based on these assumptions the model analysis the development process in three phases.
    In the first phase, disguised unemployed workers, who are not adding to agricultural output are shifted to the industrial sector at the constant institutional wages.
    In the second phase, agricultural workers add to the agricultural output but produce less than the institutional wage they get. These workers are also shifted to the industrial sector. If the migration of workers to the industrial sector continues, a point is ultimately reached when farm workers produce output equal to the institutional wage.
    In the third phase, farm workers produce more than the institutional wage they get. Thus the surplus labour is exhausted and the agricultural sector becomes commercialised.
    CRITICISMS
    This model is not free from criticisms which are discussed below:
    1. Supply of Land not Fixed:
    2. Institutional Wage not above the MPP:
    3. Institutional Wage not constant in the Agricultural Sector:
    4. Closed Model:
    5. Commercialisation of Agriculture Leads to Inflation:
    6. MPP not Zero.
    CONCLUSION
    It should be of some interest to note that the Lewis model and its many offspring continue to be viewed as relevant in the South and considered a valuable guide to policy in places like China, India, Bangladesh, Central America and even some parts of sub-Saharan Africa, i.e., wherever heavy population pressure on scarce cultivable land remains a feature of the landscape. Most Northern development economists, on the other hand, are today focusing either on aggregate cross-section models to determine the sources of economic growth in the Barro (1991) tradition or, at the micro level, on the econometric modeling of household behavior, with very little interaction between the two approaches. In the South, dualism still holds the attention of both theoretical and empirical observers. According to Lewis, productivity changes will accrue to the importing or advanced country, leading to another version of immiserizing growth. This is one area in which Lewis adherence to Prebisch-Singer probably did not sufficiently take into account the difference between labor intensive industrial and agricultural exportsalthough he properly emphasized the growing potential for inter-LDC trade. All in all, Lewis rightly saw technology, not trade, as the more dependable engine of growth.
    Surprisingly, the Lewis model of dualism also has some relevance to contemporary mainstream development models at the micro level. Lewis was basically a macro-economist, deeply immersed in economic history and the history of thought, both neglected subjects today. He always chose a general equilibrium approach, not only with respect to working within a domestic two-sector world but also with respect to the relationship of the typical developing country to the world economy, as indicated by his Wick sell and Jane way lectures (1969 and 1977). His notion of dualism, especially that focused on the labor market dimension, rural and urban, continues to offer a theoretically valid, empirically relevant and practically useful framework for dealing with some fundamental real world issues of development.

  67. Shantelchidera17@gmail.com
    Eco Edu
    2017/243804
    Eco 361

    Development economics
    LEWIS MODEL OF ECONOMIC GROWTH
    The dual-sector model is a model in development economics. It is commonly known as the Lewis model after its inventor W. Arthur Lewis. It explains the growth of a developing economy in terms of a labour transition between two sectors, the capitalist sector and the subsistence sector.
    The assumptions of Lewis model…the assumptions are the following
    The model assumes that a developing economy has a surplus of unproductive labor in the agricultural sector.
    These workers are attracted to the growing manufacturing sector where higher wages are offered.
    It also assumes that the wages in the manufacturing sector are more or less fixed.
    Entrepreneurs in the manufacturing sector make profit because they charge a price above the fixed wage rate.
    The model assumes that these profits will be reinvested in the business in the form of fixed capital.
    An advanced manufacturing sector means an economy has moved from a traditional to an industrialized one.
    W. A. Lewis divided the economy of an underdeveloped country into 2 sectors, which are the capitalist sector and subsistence sector.
    The capitalist sector :Lewis defined this sector as “that part of the economy which uses reproducible capital and pays capitalists thereof”. The use of capital is controlled by the capitalists, who hire the services of labour. It includes manufacturing, plantations, mines etc. The capitalist sector may be private or public. On the other hand the subsistence sector is just like agricultural sector is just like opposite of capitalist sector..
    The subsistence sector
    This sector was defined by him as “that part of the economy which is not using reproducible capital”. It can also be adjusted as the indigenous traditional sector or the “self employed sector”. The per head output is comparatively lower in this sector and this is because it is not fructified with capital.
    The relationship between the Lewis sector

    The primary relationship between the two sectors is that when the capitalist sector expands, it extracts or draws labour from the subsistence sector. This causes the output per head of labourers who move from the subsistence sector to the capitalist sector to increase.
    HARIS TODARO MODEL
    Harris Todaro model ..this model is based on migration..which s being divided into urban _rural migration..there is an assumption that people migrate from the rural areas to the urban for some certain reasons.
    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.
    In summary ,migration from rural areas to urban areas will increase if:
    Urban wages (wu) increase in the urban sector (le), increasing the expected urban income.
    Agricultural productivity decreases, lowering marginal productivity and wages in the agricultural sector (wr), decreasing the expected rural income.However, even though this migration creates unemployment and induces informal sector growth, this behavior is economically rational and utility-maximizing in the context of the Harris–Todaro model. As long as the migrating economic agents have complete and accurate information concerning rural and urban wage rates and probabilities of obtaining employment, they will make an expected income-maximizing decision.

  68. Avatar OKOYECHUKWU CHIOMA AUGUSTINA, REG NO: 2017/244837, DEPT: EDUCATION/ECONOMICS says:

    HARRIS TODARO MODEL OF MIGRATION.
    Since the wage in cities is higher than one in village people migrate into the cities hoping to get urban job. The probability to get a job depends on the size of unemployment pool in relation to the number employed in industries. Therefore, in many mostly less-developed countries urban unemployment is a big issue. W. Max Corden in his book Trade Policy and Economic Welfare claims that the possible reason for urban unemployment is the wage differential. This coexists with usually high minimum wage in industries and with a marginal product of labor in agriculture less than the urban minimum wage.
    John R. Harris and Michael P. Todaro presented the seminal ‘Two sector model’ in American Economic Association, 1970. This model is a pioneering study in the field encompassing rural-urban migration. 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 situation 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 model is that economic incentives, earnings differentials, and the probability of getting a job at the destination have influence on the migration decision. In other words, this theory puts forward that rural-urban migration will occur when the urban expected wage exceeds the rural obtain wage.
    HARRIS TODARO MODEL OF MIGRATION EXPLAINED (ITS ARGUMENTS)
    The rural-urban two-sector model centrally holds the following features:
    1) Real wages (adjusted for cost-of-living differences) were higher in urban formal sector jobs than in rural traditional sector jobs.
    2) To be hired for a formal sector job, it was necessary to be physically present in the urban areas where the formal sector jobs were located.
    3) Consequently, from the first two features, more workers searched for formal sector jobs than were actually hired. Employers hired some of the searchers but not all of them.
    4) To maintain equality between the expected wage associated with searching for an urban job and the expected wage associated with taking up a lower-paying rural job, the equilibrium arising in such a setting would be characterized by urban unemployment.
    5) Any temporary difference in the expected wages between one sector and another would be eroded as workers migrate from the low expected wage labour market to the high expected wage one.
    ASSUMPTIONS OF HARRIS TODARO MODEL OF MIGRATION
    There are two regions: rural (agricultural) and urban (industrial) in two sector economic model.
    The Assumptions are:
    Migration is a primarily economic decision.
    There is no unemployment in the rural sector and it is perfectly competitive such that wage is equal to marginal product
    Members of the labor force rationally compare the expected value of potential wages to current wages to make the decision to migrate or not.
    The crucial assumption of the Harris and Todaro’s model is that workers base their migration decision on their expected incomes at urban (industrial) areas. As the basic model is static, the expected income is just the weighted average of the urban wage and the unemployment benefit, the weights being the probabilities to find and not to find an urban job. The model assumes that the rate of rural-urban (m= M/LR) is a function of:
    The probability that an urban labour can successfully find a modern sector job, which can be expressed as a positive function of the current urban employment rate EU/LU, or LU-EU/LU, a negative function of urban unemployment rate.
    ii) The urban-rural real income differential is expressed as- YU/YR= W (W greater than 1),
    Besides, migration will also be related to, iii) other factors (Z), such as distance, personal conduct, urban amenities. Where m= Rate of migration from rural to urban areas. M= Actual volume of rural-urban migration LR= Rural labour force EU= Level of urban employment.
    LU= Urban labour force YU= Urban real income YR=Rural real income W= Ratio between rural/urban real income Therefore, the basic rural-migration migration model is expressed as: (rural-urban migration) m = function of (current urban employment rate, urban-rural real income differential, and personal factors). Thus, (rural-urban migration rate) m= f (EU /LU, W, Z)…. 1.1 = f (EU /LU) (holding W and Z constant) = Function of the ratio between the level of urban employment and urban labour force. Where f (EU /LU) is greater than Zero; f (W) is greater than Zero, and f (Z) may have +ve or – ve values; (here fis the time derivative of three elements). That is, migration rate is a function of the ratio between the level of urban employment and urban labour force, or the probability to find a job in an urban industrial sector.
    Besides, urban labour force growth can be expressed as: lU/LU=r + LR/LU(m)= r + LR/LU f (EU/LU) ..1.2 r= natural growth rate of rural/urban labour force lU= time derivative of LU (urban labour force)
    That is, time derivative of urban labour force growth rate is a function of urban labour force growth rate and the probability of finding a job in a modern urban sector (as derived from equation 1.1 above)
    The model, then tried to compare the live path of equation (1.1) or (1.2) with the growth rate of urban employment, and discussed rural-urban migration and urban employment under the different assumption of population and employment growth rates.
    CONTRIBUTIONS OF THE MODEL
    The fundamental contribution of Harris and Todaro’s rural-urban two sector migration model was to build a model that fit the stylized facts of the labour market. On the lines of the theory, developing countries adopted program on integrated rural development which encouraged an increase in the rural traditional sector wage. The theory proves that the higher the unemployment rate, the lower is the probability of new migrants from the countryside actively seeking formal sector employment who are unable to find it. The significant findings of the theory are:
    First, if the expected urban wage equals rural income, there is no incentive to migrate.
    Second, if the expected urban wage is greater than rural income, there is a great incentive to move from rural to urban area.
    Third, if the expected urban wage is less than rural incomes, there would be an incentive to move in other direction.
    Fourth, the expected urban wage depends on what type of job migrant is engaged in.
    Therefore, the Harris Todaro’s model helps policy-makers to avoid two mistakes. One is to assume that development efforts should necessarily be channeled to the sectors where the poor are. The other is to assume that efforts should necessarily be focused on getting the poor out of the sectors in which they presently are.
    However, wages in the urban sector are always higher than the market clearing equilibrium level due to factors such as unionization of workers and government policies such as minimum wage, pension plans, and unemployment benefits. Additionally, firms choose to set wages higher than other options in order to attract higher quality workers and fire workers who prove to be inferior. In essence, they buy an incentive for productivity. Because of this, wages in the urban sector are always set higher than market equilibrium and wages in the rural sector are conversely lower than equilibrium due to the surplus of labor this wage premium created.
    LIMITATIONS
    Some of the assumptions of the Harris-Todaro’s model were judged to be too restrictive.The model also assumesthat potential migrants are risk neutral where the poor migrants will likely be risk averse, as in they are indifferent between a certain expected rural income and an uncertain expected urban income of the same magnitude. The assumption that there exists a perfect competition in rural agriculture sector is not realistic.
    The model results in an ex ante equilibrium but not ex post, since those who migrate and are unemployed or employed at a lower wage in the informal sector are not better off.
    Assumes subjects are risk-neutral when in reality, most people are risk-averse. However, the model can be easily adjusted to reflect this. In a risk-averse version of the Todaro Model, less migration occurs, causing the agricultural sector to be larger. The level of risk aversion is reflected in the difference between the informal sector wage and the formal sector wage.
    CONCLUSION
    Harris Todaro model explains some issues of rural-urban migration. This migration happens in case when expected rural income is higher than rural wages. In this case economy may have high rates of unemployment. The equilibrium condition of this model is when expected rural wage is equal to rural wage. When government subsidize manufacturing sector Harris Todaro paradox may happen. According to the authors job creation instead of dealing with unemployment problem actually may cause increase of unemployment. This happens when urban-rural wage differential is high enough, so rural workers move to the cities hoping to find a job with high wage. Obviously, not all these workers succeed in finding jobs which leads to unemployment. Another issue is that inducing minimum wages creates labor market distortions. Therefore, policy makers should not set the minimum wage rates. In addition, simulations showed that different policies’ outcomes depend on elasticity of labor demand in different sectors and on marginal product of labor. As Harris and Todaro suggested the first-best policy would be subsidizing manufacturing along with restrictions of rural migration.

    LEWIS-FEI RANIS MODEL
    The FeiRanis model of economic growth is a dualism model in developmental economics or welfare economics that has been developed by John C. H. Fei and Gustav Ranis and can be understood as an extension of the Lewis model. It is also known as the Surplus Labor model. It recognizes the presence of a dual economy comprising both the modern and the primitive sector and takes the economic situation of unemployment and underemployment of resources into account, unlike many other growth models that consider underdeveloped countries to be homogenous in nature.
    According to this theory, the primitive sector consists of the existing agricultural sector in the economy, and the modern sector is the rapidly emerging but small industrial sector. Both the sectors co-exist in the economy, wherein lies the crux of the development problem. Development can be brought about only by a complete shift in the focal point of progress from the agricultural to the industrial economy, such that there is augmentation of industrial output. This is done by transfer of labor from the agricultural sector to the industrial one, showing that underdeveloped countries do not suffer from constraints of labor supply. At the same time, growth in the agricultural sector must not be negligible and its output should be sufficient to support the whole economy with food and raw materials.
    MAIN ARGUMENTS OF THE MODEL
    A . Lewiss Model of Rural-Urban Migration:
    Prof. W. Arthur Lewis in his article, Unlimited Supplies of Labour has explained the process of migration from rural to urban areas in an underdeveloped economy.
    An underdeveloped economy is a dual economy having two sectors:
    (i) a modern sector, and
    (ii) an indigenous sector.
    Out of these two, the latter is the predominant sector. The capitalist sector is defined as that part of the economy which uses reproducible capital, pays capitalists for the use thereof and employs wage labour for profit making purposes.The distinguishing feature of a capitalist sector is that it hires labour and sells output to earn profit. The subsistence sector is that part of the economy which does not use reproducible capital. Labour is abundant and disguised unemployment is the result. The marginal productivity of labour in the agricultural sector may be zero or even negative. In order to solve the problem of disguised unemployment.
    Prof. Lewis would like the capitalist (industrial) sector to be expanded by transferring labour from the subsistence (rural) sector to the capitalist sector. He assumes that the supply of labour is perfectly elastic at the subsistence wage.
    Since the supply of labour is unlimited, new industries can be established or existing industries can be expanded without limit at the current wage i.e. subsistence wage by withdrawing labour from the subsistence sector. When people migrate from the subsistence sector to the modern sector, the wages should be higher in the capitalist sector than in the subsistence sector by a small but fixed amount.
    SOME ASSUMPTIONS AND CRITICISMS
    The Lewis model of migration has been criticised on the following counts:
    1. Wage Rate not constant in the Capitalist Sector:
    The theory assumes a constant wage rate in the capitalist sector until the supply of labour is exhausted from the subsistence sector. This is unrealistic because the wage rate continues to rise over time in the industrial sector of an underdeveloped economy even when there is open unemployment in its rural sector.
    2. Not Applicable if Capital Accumulation is Labour Saving: Lewis assumes that the capitalist surplus is reinvested in productive capital. But according to Reynolds, if the productive capital happens to be labour saving, it would not absorb labour and the theory breaks-down.
    3. Skilled Labour not a Temporary Bottleneck: Given an unlimited supply of labour, Lewis assumes the existence of unskilled labour for his theory. Skilled labour is regarded as a temporary bottleneck which can be removed by providing training facilities to unskilled labour. No doubt skilled labour is in short supply in underdeveloped countries but skill formation poses a serious problem, as it takes a very long time to educate and train the multitudes in such countries.
    4. One-sided Theory: This is a one-sided theory because Lewis does not consider the possibility of progress in the agricultural sector. As the industrial sector develops with the transfer of surplus labour, the demand for food and raw materials will rise which will, in turn, lead to the growth of the agricultural sector.
    5. Mobility of Labour not so Easy: Higher capitalist wage will not lead to the movement of surplus labour from the subsistence sector to the capitalist sector. People are so intensely attached to their family and land that they do not like to leave their kith and kin. Moreover, differences in language and custom, the problems of congestion, housing and high cost of living in the capitalist sector stand in the way of mobility of labour of this sector. This is the weakness of the theory.
    B.The Fei-Ranis Model on Rural-Urban Migration:
    John Fei and Gustav Ranis have presented in an article entitled, A Theory of Economic Development, the process of rural-urban migration in underdeveloped countries.The model is related to an underdeveloped economy having surplus labour but scarcity of capital. The major part of the population is engaged in agriculture which is stagnant. Non-agricultural occupations use small capital. There also exists an industrial sector.The process of development involves transfer of surplus labour from the agricultural sector to the industrial sector, so as to increase its productivity from zero to a wage level equal to the institutional wage in agriculture.
    ASSUMPTIONS
    The assumptions of the theory are:
    1. Land is fixed in supply.
    2. Population growth is taken as an exogenous phenomenon.
    3. There is a dual economy consisting of a stagnant agricultural sector and an active industrial sector.
    4. Agricultural activity is characterised by constant returns to scale with labour as a variable factor.
    5. The output of the agricultural sector is a function of land and labour alone.
    6. The output of the industrial sector is a function of capital and labour alone.
    7. Workers in both the sectors consume only agricultural products.
    8. If population increases above the point where marginal productivity of labour becomes zero, labour can be shifted to the industrial sector without loss in agricultural output.
    9. The real wage in the industrial sector remains fixed and is equal to the initial level of real income in the agrarian economy, which they call the institutional wage.
    THE MODEL: ARGUMENTS
    Based on these assumptions the model analysis the development process in three phases.
    In the first phase, disguised unemployed workers, who are not adding to agricultural output are shifted to the industrial sector at the constant institutional wages.
    In the second phase, agricultural workers add to the agricultural output but produce less than the institutional wage they get. These workers are also shifted to the industrial sector. If the migration of workers to the industrial sector continues, a point is ultimately reached when farm workers produce output equal to the institutional wage.
    In the third phase, farm workers produce more than the institutional wage they get. Thus the surplus labour is exhausted and the agricultural sector becomes commercialised.
    CRITICISMS
    This model is not free from criticisms which are discussed below:
    1. Supply of Land not Fixed:
    2. Institutional Wage not above the MPP:
    3. Institutional Wage not constant in the Agricultural Sector:
    4. Closed Model:
    5. Commercialisation of Agriculture Leads to Inflation:
    6. MPP not Zero.
    CONCLUSION
    It should be of some interest to note that the Lewis model and its many offspring continue to be viewed as relevant in the South and considered a valuable guide to policy in places like China, India, Bangladesh, Central America and even some parts of sub-Saharan Africa, i.e., wherever heavy population pressure on scarce cultivable land remains a feature of the landscape. Most Northern development economists, on the other hand, are today focusing either on aggregate cross-section models to determine the sources of economic growth in the Barro (1991) tradition or, at the micro level, on the econometric modeling of household behavior, with very little interaction between the two approaches. In the South, dualism still holds the attention of both theoretical and empirical observers. According to Lewis, productivity changes will accrue to the importing or advanced country, leading to another version of immiserizing growth. This is one area in which Lewis adherence to Prebisch-Singer probably did not sufficiently take into account the difference between labor intensive industrial and agricultural exportsalthough he properly emphasized the growing potential for inter-LDC trade. All in all, Lewis rightly saw technology, not trade, as the more dependable engine of growth.
    Surprisingly, the Lewis model of dualism also has some relevance to contemporary mainstream development models at the micro level. Lewis was basically a macro-economist, deeply immersed in economic history and the history of thought, both neglected subjects today. He always chose a general equilibrium approach, not only with respect to working within a domestic two-sector world but also with respect to the relationship of the typical developing country to the world economy, as indicated by his Wick sell and Jane way lectures (1969 and 1977). His notion of dualism, especially that focused on the labor market dimension, rural and urban, continues to offer a theoretically valid, empirically relevant and practically useful framework for dealing with some fundamental real world issues of development.

  69. Avatar Durumba Simon Ikechukwu says:

    NAME: Durumba Simon Ikechukwu
    REG.NO. 2017/249322
    DEPARTMENT: Combined Social Sciences ( Economics/Political Science)
    EMAIL: Sp680616@gmail.com
    HARRIS-TODARO’S MIGRATION THEORY
    John R. Harris and Michael P. Todaro developed the Theory of migration. This theory is used in development economics and it illustrates a migrants’ decision on his expected income difference between a rural(agriculture) and urban(manufacturing) areas. The model of rural-urban migration is typically studied in the context of employment and unemployment situation in developing countries. The need of the model is to explain the critical urban unemployment problem in developing countries.
    ASSUMPTIONS OF THE MODEL
    Two sectors: urban (manufacture) and rural (agriculture)
    Rural-urban migration condition: when urban real wage exceeds real agricultural product
    No migration cost
    Perfect competition
    Cobb-Douglas production function
    THE Model
    The fundamental contribution of Harris and Todaro’s rural-urban two sector migration model was to build a model that fit the stylized facts of the labor market. On the lines of the theory, developing countries adopted program on integrated rural development which encouraged an increase in the rural traditional sector wage. The theory proves that the higher the unemployment rate, the lower is the probability of new migrants from the countryside actively seeking formal sector employment who are unable to find it. The findings are as follows:
    First, if the expected urban wage equals rural income, there is no incentive to migrate.
    Second, if the expected urban wage is greater than rural income, there is a great incentive to move from rural to urban area.
    Third, if the expected urban wage is less than rural incomes, there would be an incentive to move in other direction.
    Fourth, the expected urban wage depends on what type of job migrant is engaged in.

    The Haris Todaro’s model will helps policy-makers in Nigeria to avoid two mistakes:
    a). One is to assume that development efforts should necessarily be channeled to the sectors where the poor are.
    b.) The other is to assume that efforts should necessarily be focused on getting the poor out of the sectors in which they presently are.
    CONCLUSION
    Harris Todaro model explains some issues of rural-urban migration. This migration happens in case when expected urban income is higher than rural wages. In this case economy may have high rates of unemployment. The equilibrium condition of this model is when expected urban wage is equal to rural wage. When government subsidize manufacturing sector Harris Todaro paradox may happen.
    According to the Harris and Todaro, job creation instead of dealing with unemployment problem actually may cause increase of unemployment. This happens when urban-rural wage differential is high enough, so rural workers move to the cities hoping to find a job with high wage. Obviously, not all these workers succeed in finding jobs which leads to unemployment. Another issue is that inducing minimum wages creates labor market distortions. Therefore, policy makers in Nigeria should not set the minimum wage rates. In addition, simulations showed that different policies’ outcomes depend on elasticity of labor demand in different sectors and on marginal product of labor. As Harris and Todaro suggested the first-best policy would be subsidizing manufacturing along with restrictions of rural migration.

    2. LEWIS FEI-RANIS MODEL
    INTRODUCTION
    The Fei–Ranis model of economic growth is a dualism model developed by John C. H. Fei and Gustav Ranis and can be understood as an extension of the Lewis model. It is also known as the Surplus Labor model. It recognizes the presence of a dual economy comprising both the modern and the primitive sector and takes the economic situation of unemployment and underemployment of resources into account, unlike many other growth models that consider underdeveloped countries to be homogenous in nature. According to this theory, the primitive sector consists of the existing agricultural sector in the economy, and the modern sector is the rapidly emerging but small industrial sector. Both the sectors co-exist in the economy, wherein lies the crux of the development problem. Development can be brought about only by a complete shift in the focal point of progress from the agricultural to the industrial economy, such that there is augmentation of industrial output. This is done by transfer of labor from the agricultural sector to the industrial one, showing that underdeveloped countries do not suffer from constraints of labor supply. At the same time, growth in the agricultural sector must not be negligible and its output should be sufficient to support the whole economy with food and raw materials. Like in the Harrod–Domar model, saving and investment become the driving forces when it comes to economic development of underdeveloped countries.
    SIGNIFICANCE OF AGRICULTURE IN THE MODEL
    The Lewis model is criticized on the grounds that it neglects agriculture. Fei– Ranis model goes a step beyond and states that agriculture has a very major role to play in the expansion of the industrial sector. In fact, it says that the rate of growth of the industrial sector … depends on the amount of total agricultural surplus and on the amount of profit that are earned in the industrial sector. So, larger the amount of surplus and the amount of surplus put into productive investment and larger the amount of industrial profits earned, the larger will be the rate of growth of the industrial economy. As the model focuses on the shifting of the focal point of progress from the agricultural to the industrial sector, Fei and Ranis believe that the ideal shifting takes place when the investment funds from surplus and industrial profits are significantly large so as to purchase industrial capital goods like plants and machinery. These capital goods are needed for the creation of employment opportunities. Hence, the condition put by Fei and Ranis for a successful transformation is that Rate of increase of capital stock & rate of opportunities > Rate of population growth
    CRITICISMS
    The FR model is considered to be an improvement over Lewis. This model presents a balanced growth of both the sectors of the economy, the most notable thing for the growth of UDCs. Despite this fact, this model has following shortcomings:

    (i) Marginal Productivity of Labour in Phase I: The FR model is of the view that MFL = 0 in the first phase of growth, and the transfer of labour from agri. would not reduce output in the agri. sector in phase I. But the economists like Berry and Soligo are of the view that agri. output in phase I of FR model will not remain constant and may fell under different systems of land tenure, i.e., the peasant proprietorship and share cropping etc.

    (ii) Marginal Productivity of Labour is Not Zero: Prof. Jorgenson who has also presented a model of ‘dual economy’ has object FR model’s contention of zero MP in phase I. He says whether MPL will be zero is an empirical issue. During the seasons of sowing and harvesting the MPL > 0. Jorgenson concluded on the basis of Japanese data even for the pre I world war period the supply of labour was not unlimited. Then how MPL can be zero.

    (iii) Ignoring The Role of Capital: The FR model concentrated upon land and labour as the determinants of output, ignoring the role of capital. But Profs. Brown, Byres, Frankel, Griffen, Ghatak and Ingersent are of the view that in the UDCs there has occurred what is known as ‘Green Revolution’ in agri. which has promoted the greater use of capital and technology on lands. Consequently, there has been a greater increase in the agri. productivity and agri. incomes.
    (iv) Open Economy: FR model ignored the role of foreign trade as it assumed a closed economy model. In the 2nd phase when agri. product decreases the TOT goes against industrial sector. This would occur in the presence of closed economy. But if the model is made open such would not happen as the goods could be imported in the presence of then-scarcity. This was especially observed in case of Japan which imported cheap farm products to improve her TOT (terms of trade).

    (v) Supply of Land in Long Run: FR model assumed that in the process of economic development the supply of land remained fixed. But it is not true. The supply of land can be increased in case of long run.

    (vi) Commercialization of Agri. And Inflation: According to FR model when 3rd phase starts the agri. sector becomes commercialized. But it is criticized by saying that this phase does not start so easily The shifting of labour to industrial sector will create labor shortage in agri. sector. This will create shortage of food stuff leading to increase their prices. In this way, the inflation will generate which may obstruct the process of development.

    (vii) Low Productivity in Agric Sector: According to Jorgenson it has been observed that there has been a very slow rise in the productivity of agri. sector. Consequently, the surplus will hardly be created in agri. sector. Accordingly, agri. sector will not contribute to development Thus the growth requires that the surplus must be generated and it should persist.

    CONCLUSION
    For economies in the early stages of development or still developing, such as Nigeria, the rural agricultural sector consists of family farming units, with a hiring principle that is different from that of the firm. Family members work together and share the value of their output. They are paid not the marginal product but the average product of labor. Thus, it is possible that there exists surplus labor in Nigeria and other developing countries. The notions of surplus labor and disguised unemployment have been a central part of development economics since Lewis (1954). With the presence of surplus labor in the traditional sector, the modern sector can expand without increasing labor costs. This process will continue until the surplus labor in the traditional sector is used up. After this point is reached, wages begin to rise consistent with rising marginal productivity, in which the workers in the traditional sector would also be paid in accordance with their marginal product rather than the subsistence wage. At this stage, the dualistic economic structure disappears, replaced by a competitive one-sector economy that can be explained by the neoclassical model.

  70. Avatar Mgbada ogochukwu Emelda says:

    NAME: MGBADA OGOCHUKWU EMELDA
    REG NUM: 2017/245040
    DEPARTMENT OF ECONOMICS
    CHIDIMMALISA.BLOGSPOT.COM

    AN ESSAY ON THE HARRIS TODARO MODEL OF MIGRATION

    The HarrisTodaro 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.

    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 is 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 drive of rural-urban migration, while urban unemployment is local governments’ main concern in many cities.[1]

    Formalism
    The formal statement of the equilibrium condition of the HarrisTodaro model is as follows:
    Let wr be the wage rate (marginal productivity of labor) in the rural agricultural sector.
    Let le be the total number of jobs available in the urban sector, which should be equal to the number of employed urban workers.
    Let lus be the total number of job seekers, employed and unemployed, in the urban sector.
    Let wu be the wage rate in the urban sector, which could possibly be set by government with a minimum wage law.
    Rural to urban migration will take place if:{\displaystyle \ w_{r}{\frac {l_{e}}{l_{us}}}w_{u}}
    At equilibrium,

    {\displaystyle \ w_{r}={\frac {l_{e}}{l_{us}}}w_{u}}
    With the random matching of workers to available jobs, the ratio of available jobs to total job seekers gives the probability that any person moving from the agricultural sector to the urban sector will be able to find a job. As a result, in equilibrium, the agricultural wage rate is equal to the expected urban wage rate, which is the urban wage multiplied by the employment rate.

    Conclusions

    Therefore, migration from rural areas to urban areas will increase if:

    Urban wages (wu) increase in the urban sector (le), increasing the expected urban income.
    Agricultural productivity decreases, lowering marginal productivity and wages in the agricultural sector (wr), decreasing the expected rural income.
    However, even though this migration creates unemployment and induces informal sector growth, this behavior is economically rational and utility-maximizing in the context of the HarrisTodaro model.

    INTRODUCTION TO THE LEWIS MODEL:

    Economic Development with Unlimited Supplies of Labour in 1954. In his model Lewis divides the economy in an underdeveloped country in two sectors namely the Subsistence sector and the capitalist sector. Subsistence is identified with the agricultural sector of the economy while the capitalist sector implies mainly the manufacturing sector of the economy.
    Capitalist sector also includes plantations and mining where hired labour is employed for purposes of production. The capitalist sector can either be private or public in nature. Subsistence sector, that the agricultural sector is considered to be labour intensive. It does not use reproducible capital. It uses poor techniques of production and has very low productivity.

    Assumptions of the Lewis Model:

    (A) Surplus Labour in the Subsistence Sectors:

    The basic assumption of the model is that there exists surplus labour in the subsistence sectors. It includes labour whose marginal productivity is zero as well as that whose marginal productivity is positive but is less than the institutional wage. This labour comprises farmers, agricultural labourers, petty traders domestic servants and women.
    The surplus labour in the agriculture sector acts as a source of unlimited supply of labour for the manufacturing sector. By unlimited supply of labour. Lewis means that the supply of labour is perfectly elastic at a particular wages. This particular wage is somewhat higher than the institutional wage which each worker in the agricultural sector gets.

    Lewis calls it as institutional wage because every worker gets this wage because of some institutional arrangements. This wages is equal to an average share of each worker in the total output in the subsistence sector. If market forces were allowed to operate in the subsistence sector labourers with zero margin productivity or those with a very low marginal productivity would not have received this wage.

    (B) Importance of Saving:
    Another important assumption that Lewis makes is about the savings generated in the capitalist sector and in the subsistence sector. The capitalist sector invests all its savings for its further expansion.
    Those in the subsistence sector, on the other hand squander away their savings, if any in purchase of jewellery & for construction of temples etc. The propensity to save of the people in subsistence sector is also lower when compared with that of those in the capitalist sector.
    Lewis in fact so much fascinated by the higher propensity to save of the capitalist sector that he even advocates a transfer of income from the subsistence sector to the capitalist sector. He feels that steps have to be taken to raise the rate of savings from 10% to 15% if the development of the economy has to be smooth.

    The Working of the Lewis Model:
    The explanation of working of the Lewis model is quite simple. He feels that if a wage higher than the institutional wage prevailing in the subsistence sector by a certain proportion of the institutional wage is fixed in the capitalist sector the capitalist sector will be able to attract an unlimited quantity, the labour from subsistence sector. This will enable the capitalist sector to expand. It will, in turn lead to the generation of more savings in the capitalists sector.
    The additional saving, will not only help the entrepreneurs to invest more but also to improve the quality of capital invested. This will result in more employment of labour from the subsistence sector. This will lead to generation of more savings in the Capitalist sector which can be further invested leading to employment of more surplus labour and so on.
    Explains the Process of Expansion of the Capitalists Sector
    We is the wage rate fixed in the capitalist sector. It is higher than W which represents the institutional wage. The wage in the capitalist sector has to be higher than the instructional wage because only such higher wage can attract labour from the subsistence sector. At first; ON-I labour is employed. This will lead to the generation of surplus equal to AMIS, after the wages at the rate W have been paid.
    According to Lewis this surplus AMIS will be reinvested either in old type of capital or may even be used to improve the existing techniques. All this will result in marginal productivity curve of labour moving M2 M2. Now more labour at wage. We can employee, ON2 amount of labour will now be employed. More surplus will then be generated. It would be reinvested.
    Marginal productivity of labour curve will shift to M3 M3 more labour can now be employed. Still more surpluse will be generated and re-invested and so on. The process of transfer of labour from the subsistence sector to the capitalist sector will continue for some time till some obstacles, hindering this transfer appear.

    Role of Bank Credit:
    From the above analysis, one might get the impression that it is only through the surplus generated in the capitalist sector that the development of the capitalist sector takes place. This however is not correct.
    The process of development can also start if the capitalist sector initially does not invest its savings in the capital but borrows from the banks. According to Lewis the basic problems is to employ the labour from the subsistence sector and this can be initially done through investment of funds borrowed from the banks.
    Lewis is conscious of the fact that creation of bank credit will give rise to inflationary increase in prices. However, he is not much perturbed by this prospect. He is of the view that inflationary pressures will not continue forever.
    A time will come when the additional savings generated by the investment of borrowed funds become equal to these very funds. At that time, prices will stop rising further. As he says, an equilibrium.is reached when savings generated through the investment of additional bank credit become equal to the amount of bank credit itself.
    He is also aware of another fact. Inflation can make the distribution of income unfair. However, he says, it will be good for the manufacturing sector if the distribution of income moves in favour of the capitalists. Of course, if inflation tilts the distribution of income in favour of the traders it will be bad for the economy. It will only lead to more speculative activities.

    Slowing of the Pace of expansion of the Capitalist Sector:
    According to Lewis, expansion of the capitalist sector will continue unhindered so long as the supply curve for labour from the subsistence sector is perfectly elastic i.e. so long as the labour can be transferred to the capitalist sector at a constant wage. Lewis, of course is conscious of the fact that under certain circumstances, the supply curve for labour can turn upwards.

    These circumstances are:
    (i) The pace of expansion of the capitalist sector is more rapid when compared with the rate of growth of population in the subsistence sector. The surplus labour in that case will ultimately be fully exhausted.

    (ii) Technological development in the subsistence sector raise the productivity of labour with in that case will rise. We too will have to be raised them.

    (iii) As population increase due to law of decreasing marginal return, prices of food and raw materials will rise. This will increase both W and W.

    (iv) When workers in the capitalist sector start imitating the living pattern of the capitalist themselves, they may ask for higher wages.

    If any of the above four factors start operating, then according to Lewis, the expansion of the capitalist sector will be slow down.

    Impact of the Open Economy:
    The open economy can encourage the immigration of labour. If this happens, it will help in the expansion of the capitalist sector. But immigration may not be so easy. If in that case the pace of expansion of the capitalist sector slows down, capital may move out of the country as the economy is an open one. This may in turn lead to balance of payments problems and the problem of stability of rate of exchange.

    Critical Review of the Lewiss Model:

    Some of the objections against Lewiss model are as follows:
    (1) The assumption that disguised unemployment exists in the agriculture sector has not been accepted by many economists. Schultz, Viner, Heberler and Hopper are a few of such economists. According to them, the production in the subsistence sector will be affected when labour is withdrawn from it.

    (2) Lewis ignored the cost involved in training the unskilled worker transferred from the subsistence sector. Even if it is obtained at a constant wage rate, so for as its transfer from the subsistence sector is concerned, the supply curve may slope upwards so far as the capitalist, sector is concerned if the cost of training rises as more and more labour is transferred.
    (3) When labour is transferred from the subsistence sector share of agricultural output falling to each one left in the agricultural sector will go a rising. This means the institutional wage will go on rising with every transfer and so will be the wages paid in the capitalist sector.

    (4) The model assumes that, besides labour, there is unlimited supply of entrepreneurs in the capitalist sector. This is not true in the case of many of the underdeveloped countries.
    (5) It is wrong to assume that a capitalist will always re-invest their profits. They to can indulge in un-productive pursuits. They can use their profits for speculative purposes.
    (6) It is also wrong to assume that landlords always squander away their savings. The role of landlords of Japan in industrialisation of the country is well known.
    (7) The model assumes that there already exists a market for the industrial products in the country. This is wrong. People of an underdeveloped country may not be able to purchase the products perturbed by the expanding capitalist sector. Foreign markets, too, may not be available to the capitalist sector in the beginning.

    (8) Inflation is not liquidating, as has been assumed by Lewis, Experience of various, countries shows that if once prices start rising, it, becomes difficult to control them.

    (9) It is not easy to transfer labour from the subsistence Sector to the capitalist sector by offering them an incentive of a little higher wage.

    Mobility of labour is very low. Many factors like family affection, difference in language, caste, religion etc. affect it adversely.

    (10) Every underdeveloped country does not have surplus labour in the subsistence sector. As such, the model does not apply to countries which are sparsely populated.

  71. NAME:ENEH KENECHUKWU FRANKLIN
    REG NO:2017/249496
    EMAIL:ENEOWOKENECHUKWU@GMAIL.COM

    HARRIS TODARO MIGRATION MODEL
    In their seminar papers which over time has become very influential in development economics, Todaro (1969) and Harris and Todaro (1970) developed a model of rural-urban migration.
    Most Under developed economies see a massive movement of labor from the rural to urban areas. The urban areas are mostly industrial and manufacturing with the rural areas being saturated with lots agricultural activities.
    The Harris-Todaro model is typically studied in the context of developing countries employment and unemployment situations. From the Harris-Todaro model earning differences, economic incentives and the probability of actually getting a job at the place being migrated to plays an active role in the decision to migrate.
    Basically, it was used to explain migration within an economy, but we attempt to expand the model to an international level.
    To summarize, we see that the Harris-Todaro model is very limited in its scope in both an international and internal setting due to its narrow-mindedness assumption on economic values, which don’t incorporate emotional, social and humanitarian costs/benefits.
    Harris was trying to explain dualism in economics which can be seen via the decisions to migrate which can be a function of many factors’ income being a major factor, from recent times it can be observed than in Nigeria people see migration to the urban areas as searching for greener pastures and as such migration is encouraged, an average rural area indigene like Nsukka sees migrating to Lagos as a major boost, Harris Todaro Model was built on migration and its causality.

    LEWIS FEI RANIS MODEL OF ECONOMIC GROWTH
    Arthur Lewis’ seminal 1954 paper and its emphasis on dualism appeared at a time when neither the work of Keynes or Harrod-Domar nor the later neoclassical production function of Solow seemed relevant for developing countries.
    Lewis focused on organizational dualism and much less explicitly on product dualism. Indeed, neither Lewis nor the classical school concerned themselves in detail with the analysis of intersectoral relations or the intersectoral terms of trade. Lewis’ main focus was on the reallocation of labor until the turning point is reached, i.e., the time when labor reallocation has outstripped population growth long enough for dualism to atrophy and the economy to become fully commercialized.
    The fact that the terms of trade are a crucial determinant of intersectoral labor, financial, as well as commodity market clearance is not something, he very much concerned himself with.
    On the other hand, Lewis really moved beyond the classical school in a number of important dimensions. One, he was interested in transition growth from a dualistic to a one sector, modern economic growth world in the Kuznets (1971) tradition, from organizational dualism to organizational homogeneity, i.e., he saw the development problem as focusing on a change in the basic rules of operation of an economic system. Secondly, he believed in the power of technology operating in both sectors, although he didn’t explicitly model it. Thirdly, he rejected the neo-Malthusian (1815) heritage of the classical school; and finally, although not an explicit part of his basic model, he pointed out that food shortage problems could be overcome by imports in the open economy.
    Finally, last but not least, we should note that the Lewis model has also been applied to labor movements across countries, along with movements among two sectors in the closed economy
    According to Harris development would be stimulated when excess labor in the rural areas is channeled to the urban sector or industrial sector where they can be optimized.
    Taking Nigeria, a case study the economic impact of the rural sector in ratio to urban is relatively poor and they are better and more sophisticated mean of production or production patterns as as such excess labor should be engineered towards industrialization

  72. Avatar Nto Sunday says:

    NAME: NTO SUNDAY EKE REG NO:2017/242943
    DEPARTMENT: ECONOMICS
    Email: ntosunday9@gmail
    Joshbalsam.blogspot. com

    THE HARRIS –TODARO MODEL OF MIGRATION

    INTRODUCTION
    The wage in cities is higher than the one obtainable in rural areas .Given this wage differential, people rationally migrate into the cities hoping to get an urban job. But the probability of getting an urban job is not completely dependent on that rational move ,rather it depends on the rate of employment in urban area. Consequentially, under-developed countries are faced with the problem of urban unemployment which is caused majorly by rural-urban migration. The Todaro Paradox occurs when job creation in urban area further leads to unemployment.
    ASSUMPTIONS OF THE HARRIS –TODARO MODEL OF MIGRATION
    (1)Urban wage is institutionally and legally fixed .
    (2)Small open economy; the economy considered in Harris -Todaro model is a small open economy.
    (3)Two sector economy; One an agricultural rural sector and the other , manufacturing urban sector economy..
    (4)The equilibrium is reached when the expected wage in urban areas is equal to the marginal product of an agricultural worker.
    THE CORE AND BASIC CHARACTERISTICS OF HARRIS-TODARO MODEL OF MIGRATION
    ( 1)Real wages are higher in urban formal sector jobs than in rural traditional –sector jobs.
    (2)To be hired, the worker must be physically present in the urban areas where the formal sector jobs are located.
    (3)Any temporal difference in the expected wages between one sector and another is eroded as workers migrate from the low-expected-wage labor market to the high-expected-wage labor market.
    (4)Rational economic consideration primarily stimulates migration.
    THE HARRIS-TODARO MODEL OF MIGRATION
    The Harris-Todaro Model of migration named after John R.Harris and Michael Todaro, is an economic Model developed in 1970 and used in development economics to explain the issues concerning rural –urban Migration. The Harris-Todaro model is a pioneering general equilibrium model describing the process of rural-urban labour migration [due to wage differentials] and the existence of urban unemployment in developing countries.
    The most significant feature of this model is that it made it possible for analysts to deal with unemployment, by including the unemployed workers who were waiting for job opportunities in the urban sector.
    Given the wage rigidity in the urban area ,flexibility of wage in rural area and the mobility of labour assumptions. It is possible for workers to move freely between sectors. Workers in the rural area can easily migrate to the urban area in search of better wage. Some may succeed while others are pushed to the urban informal sectors .This migration causes a huge pressure on the facilities and infrastructures in urban area with attendant unemployment disequilibrium.

    THEORECTICAL IMPLICATIONS OF THE HARRIS –TODARO MODEL
    The theoretical implications of this model includes the following; Firstly, the model helps us to analyze the social cost of unskilled labour (which is the wage formerly paid to the casual agricultural labourer before the worker moved out of the agricultural sector).
    Secondly, it helps us understand the Pull and push factors behind Migration , say induced Migration. This kind of migration can result either from favourable economic developments in the towns(pull factors) or from adverse developments in the rural areas(push factors).

    POLICY IMPLICATIONS OF THE HARRIS-TODARO MODEL
    The Harris-Todaro Model has far-reaching implications from the purview of policy .It poses the policy questions of “what is the most effective policy tool to solving the problem of rural-urban migration which is ravaging many developing economies?
    The first best policy would be creating new job opportunities in the urban area while simultaneously placing an institutional restriction on rural-urban migration.
    Again, The long-term solution to the problem of rural-urban migration lies in adopting policies that aims at biased yet systemic development of the rural area.(Electrification, provision of portable water, building of viable firms in the rural areas etc)
    These two policy solutions, without doubt can both in the in the short-run and long-run solve to a reasonable extent the problem of rural-urban migration.

    THE NIGERIAN ECONOMY AND THE HARRIS-TODARO MODEL
    Let’s attempt a contextualization of the Harris-Todaro model to the Nigerian economy this way. The Harris-Todaro model explains theoretically and practically the ravaging issue of rural-urban migration in Nigeria .Rural dwellers or laborers leave the agrarian sector for the cities majorly because of the perceived income and standard of living differentials. A large number of these migrants are insufficiently skilled in relation to being employable in the urban- manufacturing sector. Consequently, they end up working in the urban informal sectors. Again the number of people leaving for the cities’ white collar jobs are usually greater than the available jobs therein , this further creates an urban unemployment and the undue stressing of the urban facilities and infrastructures.
    This undue stress on urban facilities and infrastructures consequent of over population and congestion will lead to a decrease in the standard of living in the cities since many struggle to use this facilities and infrastructures at the same time.
    Put differently ,Rural- urban migration if unchecked as in Nigeria leads to reduction in the standard of living of urban dwellers.
    One of the positive checks to this problem include creating more urban employment while simultaneously placing an institutionally restriction on migration.
    Long term-wise, the problem can be eliminated by simultaneously developing the rural and urban area with a biased attention given to the former. Reason because, any perceived difference in wage /standard of living by the rural dwellers will push them to leave the rural area.

    A SUMMARY OF THE LEWIS MODEL OF ECONOMIC GROWTH
    In 1954 sir Arthur Lewis published a paper “Economic Development with unlimited supplies of labour”, after its publication many economists have either cited it or made the it the center of their discourse when analyzing economic growth.
    The focus of the model is “ dual Economics”- small-urban-industrialized sectors of economic activity surrounded by a large –rural-traditional sector.
    The central theme of the model as that, labor in dual economies is available to the urban, industrialized sector at a constant wage determined by minimum levels of existence in traditional family farming because of disguised unemployment in agriculture, there is practically unlimited supply of labor and available of industrialization, at least at the early stages of development. At some later point in the history of dual economics, the supply of labor is exhausted then only a rising wage rate will draw more labor out of agriculture.
    “Surplus labour” means the existence of such a huge population in the agricultural sector that the marginal product of labour is zero. So, if few workers are removed from land, the total product remains unchanged.
    The essence of the development process in such an economy is “the transfer of labour resources from the agricultural sector, where they add nothing to production, to the more modern industrial sector, where they create a surplus that may be used for further growth and development.”In Lewis model the transformation process or the process of structural change starts by an autonomous expansion in demand in industry as a result of changes in domestic consumer tastes, in government purchases, or in international markets.
    The central point is that labour shifts from agriculture into industry. The supply of labour from agriculture to industry is “unlimited” at the given urban wage. Lewis postulates the existence of a subsistence sector with surplus labour and he sees in this the seed for the subsistence sector. One major characteristic of the capitalist sector is that it uses reproducible capital and that it produces profit.
    APPLICATION OF LEWIS MODEL OF ECONOMIC GROWTH TO NIGERIA ECONOMY
    Despite the lewis’ model having an overarching importance in development Economics. Some of its assumptions are incongruent with contemporary less developed countries, particularly Nigeria. Some of these identified flaws include;
    Firstly , the model assumes that ‘surplus’ labor exists in rural areas while there is full employment in the urban areas. There is no surplus labour existing in the LDC, the laborers available in the agricultural in most less developed countries are insufficient to the number of people needed to produce a self sufficient food production for the entire country. The import dependent nation like Nigeria depend on other countries for agricultural produce and not just manufactured goods.Again there is wide urban unemployment existing in Nigeria.
    Secondly, the model implicitly assumes that the rate of labor transfer and employment creation is proportional to the rate of capital accumulation. The Harris-Todaro model helps us to understand this better as this rural-urban migration does not always end in employment in the urban manufacturing sector. Some of these migrants are unskilled in relation to basic skills needed in the urban and such remain unemployable.

    A SUMMARY OF SURPLUS LABOR THEORY
    The Fei–Ranis surplus labour is a dualism model in developmental economics or welfare economics that has been developed by John C. H. Fei and Gustav Ranis and can be understood as an extension of the Lewis model. It is also known as the Surplus Labor model. Lewis model did not pay enough attention to the importance of agricultural sector in promoting industrial growth, but Fei-Ranis model of dual economy explains how the increased productivity in agricultural sector would become helpful in promoting industrial sector. In this respect, it presents three stages whereby under developed countries moves from stagnation to self-sustained economic growth. According to this theory, underdeveloped economies consist of agricultural sector and the modern sector which is emerging but has a small industrial sector. The agricultural and modern sectors co-exist in the economy. Development can occur only when there is a shift in the center of attention of progress from the agricultural to the industrial sector, such that there is an enhancement of industrial output. This is achieved by the transfer of labor from the agricultural sector to the industrial sector, this shows that undeveloped countries do not suffer from deficient labor supply. While this is being done, growth in the agricultural sector must not be viewed as unimportant, and its output should be sufficient to support the entire economy.

    STAGES OF THE SURPLUS LABOUR THEORY
    The first stage of the Fei-Ranis model is very similar to Lewis. Disguised unemployment comes to being because the supply of labor is perfectly elastic and marginal productivity of labor equals zero (MPL = 0).
    In the second stage of the Fei-Ranis model, agricultural workers add to agricultural output but they produce less than institutional wage they get
    In the third stage of the Fei-Ranis model, the take-off situation comes to an end and there begins the era of self-sustained growth where the farm workers produce more than the institutional wage they get.

    THE SURPLUS LABOUR THEORY AND NIGERIAN ECONOMY
    1.One of the assumptions of Fei and Ranis is that MPPL is zero during the early phases of economic development. In a such developing such as the Nigeria, there is a constant rural-urban migration which makes the number of people in rural agriculture to be insufficient to producing a food self sufficiency. The marginal product of labour can only be zero with the assumption of fixed supply of Land and full employment. The available supply of land is somewhat unexplored.

    2. Fei and Ranis assume a close model and hence there is no presence of foreign trade in the economy. The Nigeria we know and live in is an import independent country, where almost the consumer goods are imported from abroad even amidst worsening foreign exchange rate. The assumption such as this doesn’t hold in Nigeria.
    3. Stagnation has not been taken into consideration, and no distinction is made between labor through family and labor through wages. There is also no explanation of the process of self sustained growth, or of the investment function. There is complete negligence of terms of trade between agriculture and industry, foreign exchange, money and price.

  73. Avatar Idoko Patience Uchenna. Reg. No. 2017/241111 says:

    Idoko patience UCHENNA
    Reg.no.2017/241111
    ECONOMICS EDUCATION

    TOPIC: LEWIS-FEI-RANIS MODEL(SURPLUS LABOUR THEORY

    1. INTRODUCTION
    The FeiRanis model of economic growth is a dualism model in developmental economics or welfare economics that has been developed by John C. H. Fei and Gustav Ranis and can be understood as an extension of the Lewis model. It is also known as the Surplus Labor model. It recognizes the presence of a dual economy comprising both the modern and the primitive sector and takes the economic situation of unemployment and underemployment of resources into account, unlike many other growth models that consider underdeveloped countries to be homogenous in nature.
    According to this theory, the primitive sector consists of the existing agricultural sector in the economy, and the modern sector is the rapidly emerging but small industrial sector. Both the sectors co-exist in the economy, wherein lies the crux of the development problem. Development can be brought about only by a complete shift in the focal point of progress from the agricultural to the industrial economy, such that there is augmentation of industrial output. This is done by transfer of labor from the agricultural sector to the industrial one, showing that underdeveloped countries do not suffer from constraints of labor supply. At the same time, growth in the agricultural sector must not be negligible and its output should be sufficient to support the whole economy with food and raw materials.
    COMPARISON WITH OTHER MODEL: Like in the HarrodDomar model, saving and investment become the driving forces when it comes to economic development of underdeveloped countries.
    MAIN ARGUMENTS OF THE MODEL
    A . Lewiss Model of Rural-Urban Migration:
    Prof. W. Arthur Lewis in his article, Unlimited Supplies of Labour has explained the process of migration from rural to urban areas in an underdeveloped economy.
    An underdeveloped economy is a dual economy having two sectors:
    (i) a modern sector, and
    (ii) an indigenous sector.
    Out of these two, the latter is the predominant sector. The capitalist sector is defined as that part of the economy which uses reproducible capital, pays capitalists for the use thereof and employs wage labour for profit making purposes.The distinguishing feature of a capitalist sector is that it hires labour and sells output to earn profit. The subsistence sector is that part of the economy which does not use reproducible capital. Labour is abundant and disguised unemployment is the result. The marginal productivity of labour in the agricultural sector may be zero or even negative. In order to solve the problem of disguised unemployment.
    Prof. Lewis would like the capitalist (industrial) sector to be expanded by transferring labour from the subsistence (rural) sector to the capitalist sector. He assumes that the supply of labour is perfectly elastic at the subsistence wage.
    Since the supply of labour is unlimited, new industries can be established or existing industries can be expanded without limit at the current wage i.e. subsistence wage by withdrawing labour from the subsistence sector. When people migrate from the subsistence sector to the modern sector, the wages should be higher in the capitalist sector than in the subsistence sector by a small but fixed amount.
    Transfer of Labour to the Capitalist Sector:
    Lewis explains the process of transfer of labour with the help of figure 1.

    Quantity of Labour and Wage & Marginal Product

    In the figure, the quantity of labour is shown on the X-axis and Y-axis represents wage and marginal product. OA is the wage rate of the subsistence (rural) sector and OW of the capitalist (industrial) sector. WW1 shows that the supply of labour is perfectly elastic at OW wage rate. N1D1 is the curve of marginal productivity of labour, which shows the demand of labour. Since the capitalist sector maximises profits, the wage rate remains equal to the marginal productivity of labour.
    At the current wage rate OW, employment is OL and the total product in the capitalist sector is N1PLO. Out of this output, wages are equal to OWPL and the capitalists profits are WPN1, which are reinvested to create new capital. The key to the process is the use which is made of the capitalist surplus.The capitalist employment also increases with the reinvestment of profits and the expansion of the capitalist sector. The amount of fixed capital increases as a result of further investment and the marginal productivity of labour is also raised to N2D2 making the capitalist surplus and employment larger to the level of WP1N2and OL1respectively in the figure.
    Further, reinvestments raise the marginal productivity of labour to N3D3 and the level of employment to OL2 and so on. This process will continue till the entire surplus rural labour is absorbed in the industrial sector. Thereafter, if additional workers are withdrawn from the rural (subsistence) sector to the industrial sector, there will be loss in food production in the rural sector because the ratio of workers to land will decline. This means that the marginal productivity of the remaining labour force is no longer zero. Thus the supply curve of labour WW1 will slope from left to right upwards like an ordinary supply curve (not shown in the figure) and wages and employment will continue to rise with the growth of population and labour force in the long run.
    In the Lewis model, migration is the result of concerted effort on the part ofthe state to transfer surplus rural labour to the industrial sector by developing the latter for capital formation.
    SOME ASSUMPTIONS AND CRITICISMS
    The Lewis model of migration has been criticised on the following counts:
    1. Wage Rate not constant in the Capitalist Sector:
    The theory assumes a constant wage rate in the capitalist sector until the supply of labour is exhausted from the subsistence sector. This is unrealistic because the wage rate continues to rise over time in the industrial sector of an underdeveloped economy even when there is open unemployment in its rural sector.
    2. Not Applicable if Capital Accumulation is Labour Saving: Lewis assumes that the capitalist surplus is reinvested in productive capital. But according to Reynolds, if the productive capital happens to be labour saving, it would not absorb labour and the theory breaks-down. This is shown in Fig. 2 where the curve N2D2 has a greater negative slope than the curve N1D1thereby showing labour-saving technique. With the shifting of the marginal productivity curve upwards from N1D1 to N2D2 the total output has risen substantially from ON1Q1L1to ON2Q1L1. But the total wage bill OWQ1L1 and the labour employed OL1 remain unchanged.
    3. Skilled Labour not a Temporary Bottleneck: Given an unlimited supply of labour, Lewis assumes the existence of unskilled labour for his theory. Skilled labour is regarded as a temporary bottleneck which can be removed by providing training facilities to unskilled labour. No doubt skilled labour is in short supply in underdeveloped countries but skill formation poses a serious problem, as it takes a very long time to educate and train the multitudes in such countries.
    4. One-sided Theory: This is a one-sided theory because Lewis does not consider the possibility of progress in the agricultural sector. As the industrial sector develops with the transfer of surplus labour, the demand for food and raw materials will rise which will, in turn, lead to the growth of the agricultural sector.
    5. Mobility of Labour not so Easy: Higher capitalist wage will not lead to the movement of surplus labour from the subsistence sector to the capitalist sector. People are so intensely attached to their family and land that they do not like to leave their kith and kin. Moreover, differences in language and custom, the problems of congestion, housing and high cost of living in the capitalist sector stand in the way of mobility of labour of this sector. This is the weakness of the theory.
    B. The Fei-Ranis Model on Rural-Urban Migration:
    John Fei and Gustav Ranis have presented in an article entitled, A Theory of Economic Development, the process of rural-urban migration in underdeveloped countries.The model is related to an underdeveloped economy having surplus labour but scarcity of capital. The major part of the population is engaged in agriculture which is stagnant. Non-agricultural occupations use small capital. There also exists an industrial sector.The process of development involves transfer of surplus labour from the agricultural sector to the industrial sector, so as to increase its productivity from zero to a wage level equal to the institutional wage in agriculture.
    ASSUMPTIONS
    The assumptions of the theory are actically useful framework for dealing with some fundamental real world issues of development.

    HAREIS TODARO MODEL.
    Since the wage in cities is higher than one in village people migrate into the cities hoping to get urban job. The probability to get a job depends on the size of unemployment pool in relation to the number employed in industries. Therefore, in many mostly less-developed countries urban unemployment is a big issue. W. Max Corden in his book Trade Policy and Economic Welfare claims that the possible reason for urban unemployment is the wage differential. This coexists with usually high minimum wage in industries and with a marginal product of labor in agriculture less than the urban minimum wage.
    John R. Harris and Michael P. Todaro presented the seminal ‘Two sector model’ in American Economic Association, 1970. This model is a pioneering study in the field encompassing rural-urban migration. 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 situation 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 model is that economic incentives, earnings differentials, and the probability of getting a job at the destination have influence on the migration decision. In other words, this theory puts forward that rural-urban migration will occur when the urban expected wage exceeds the rural obtain wage.
    HISTORY OF THE HARRIS TODARO MODEL OF MIGRATION
    The model was an academic investigation to throw light on the events following ‘Tripartite Agreement’ in Kenya. The newly independent Kenya in the 1960s was increasingly facing a serious situation of unemployment in the major urban cities. To cope with the situation of unemployment, Tripartite Agreement was signed between the government public sector and the private sector. The agreement increased employment in the industrial jobs in exchange for unions agreeing to hold wages at their current levels. The larger number of employment was expected to reduce unemployment, but it appeared that the urban unemployment had increased following the government’s agreement. Harris and Todaro subsequently formulated a model to explain rural-urban economic preferences to migrate. The distinctive concept in the model is that the rate of migration flow from rural (agricultural) areas to urban (industrial) areas is determined by the difference between expected urban wages and rural wages.
    HARRIS TODARO MODEL OF MIGRATION EXPLAINED (ITS ARGUMENTS)
    The rural-urban two-sector model centrally holds the following features:
    1) Real wages (adjusted for cost-of-living differences) were higher in urban formal sector jobs than in rural traditional sector jobs.
    2) To be hired for a formal sector job, it was necessary to be physically present in the urban areas where the formal sector jobs were located.
    3) Consequently, from the first two features, more workers searched for formal sector jobs than were actually hired. Employers hired some of the searchers but not all of them.
    4) To maintain equality between the expected wage associated with searching for an urban job and the expected wage associated with taking up a lower-paying rural job, the equilibrium arising in such a setting would be characterized by urban unemployment.
    5) Any temporary difference in the expected wages between one sector and another would be eroded as workers migrate from the low expected wage labour market to the high expected wage one.
    ASSUMPTIONS OF HARRIS TODARO MODEL OF MIGRATION
    There are two regions: rural (agricultural) and urban (industrial) in two sector economic model.
    The Assumptions are:
    Migration is a primarily economic decision.
    There is no unemployment in the rural sector and it is perfectly competitive such that wage is equal to marginal product
    Members of the labor force rationally compare the expected value of potential wages to current wages to make the decision to migrate or not.
    The crucial assumption of the Harris and Todaro’s model is that workers base their migration decision on their expected incomes at urban (industrial) areas. As the basic model is static, the expected income is just the weighted average of the urban wage and the unemployment benefit, the weights being the probabilities to find and not to find an urban job. The model assumes that the rate of rural-urban (m= M/LR) is a function of:
    The probability that an urban labour can successfully find a modern sector job, which can be expressed as a positive function of the current urban employment rate EU/LU, or LU-EU/LU, a negative function of urban unemployment rate.
    ii) The urban-rural real income differential is expressed as- YU/YR= W (W greater than 1),
    Besides, migration will also be related to, iii) other factors (Z), such as distance, personal conduct, urban amenities. Where m= Rate of migration from rural to urban areas. M= Actual volume of rural-urban migration LR= Rural labour force EU= Level of urban employment.
    LU= Urban labour force YU= Urban real income YR=Rural real income W= Ratio between rural/urban real income Therefore, the basic rural-migration migration model is expressed as: (rural-urban migration) m = function of (current urban employment rate, urban-rural real income differential, and personal factors). Thus, (rural-urban migration rate) m= f (EU /LU, W, Z)…. 1.1 = f (EU /LU) (holding W and Z constant) = Function of the ratio between the level of urban employment and urban labour force. Where f (EU /LU) is greater than Zero; f (W) is greater than Zero, and f (Z) may have +ve or – ve values; (here fis the time derivative of three elements). That is, migration rate is a function of the ratio between the level of urban employment and urban labour force, or the probability to find a job in an urban industrial sector.
    Besides, urban labour force growth can be expressed as: lU/LU=r + LR/LU(m)= r + LR/LU f (EU/LU) ..1.2 r= natural growth rate of rural/urban labour force lU= time derivative of LU (urban labour force)
    That is, time derivative of urban labour force growth rate is a function of urban labour force growth rate and the probability of finding a job in a modern urban sector (as derived from equation 1.1 above)
    The model, then tried to compare the live path of equation (1.1) or (1.2) with the growth rate of urban employment, and discussed rural-urban migration and urban employment under the different assumption of population and employment growth rates.
    CONTRIBUTIONS OF THE MODEL
    The fundamental contribution of Harris and Todaro’s rural-urban two sector migration model was to build a model that fit the stylized facts of the labour market. On the lines of the theory, developing countries adopted program on integrated rural development which encouraged an increase in the rural traditional sector wage. The theory proves that the higher the unemployment rate, the lower is the probability of new migrants from the countryside actively seeking formal sector employment who are unable to find it. The significant findings of the theory are:
    First, if the expected urban wage equals rural income, there is no incentive to migrate.
    Second, if the expected urban wage is greater than rural income, there is a great incentive to move from rural to urban area.
    Third, if the expected urban wage is less than rural incomes, there would be an incentive to move in other direction.
    Fourth, the expected urban wage depends on what type of job migrant is engaged in.
    Therefore, the Harris Todaro’s model helps policy-makers to avoid two mistakes. One is to assume that development efforts should necessarily be channeled to the sectors where the poor are. The other is to assume that efforts should necessarily be focused on getting the poor out of the sectors in which they presently are.

    FRAME WORK OF THE MODEL
    Formal Sector– Modern urban capitalist sector geared towards large scale production.
    Informal Sector– An unorganized, unregistered, but most legal sector consisting mainly of small family businesses and self employed individuals.
    “The self-employed were engaged in a remarkable array of activities, ranging from hawking, street vending, letter writing, knife sharpening, and junk collecting to selling fireworks, prostitution, drug peddling, and snake charming. Others found jobs as mechanics, carpenters, small artisans, barbers, and personal servants. Still others were highly successful small-scale entrepreneurs with several employees (mostly relatives) and higher incomes.”
    (Todaro, Michael P.; Smith, Stephen C. (2011-04-13). Economic Development (11th Edition) (The Pearson Series in Economics) (Page 328). Prentice Hall. Kindle Edition.)

    Rural Sector– Traditional subsistence farming with labor-oriented small scale production.

  74. Avatar okokwo maureen onyinye says:

    Name: Okonkwo Maureen Onyinye
    Reg No: 2017/244674
    Department: Library and Information Science

    HARISS-TODARO MODEL
    INTRODUCTION:
    The pioneering work on rural-urban labor migration by John R. Harris and Michael P. Todaro in late 1960s to early 1970s generated such enormous interest and later contributions that they have become an important and unique component of development economics literature. The Harris-Todaro (HT) model admits the existence, in equilibrium, of a chronic large amount of urban unemployment due to the presence of urban minimum wages. The distinguishing feature of this model is that labor migration proceeds in response to urban-rural differences in expected earnings with the urban employment rate acting as an equilibrating force on such migration; This dissertation includes three articles and deals with the topic of international trade policies of an HT-type economy with labor surplus.
    HARISS-TODARO MODEL:
    The HT model is a specific form of the ‘‘neo-classical two sectors model’’, represented by the ‘‘Heckscher, Ohlin and Samuelson model’’ (hereafter HOS model), and it can be understood as a ‘‘specific factor model’’ (hereafter SF model), proposed by Jones (1971). In the SF model, each sector has its own specific production factor which cannot move between sectors, and the specific factor endowments are also fixed. The HT model is a short-run model with fixed specific capital endowment in each sector. In this paper, however, we examine the effects that the urban capital is exogenously increased by such as economic supports or development aid by advanced foreign countries.
    2.1 MODEL AND ASSUMPTION:
    The Harris-Todaro model assumes that migration from rural to urban areas depends primarily on the difference in wages between the rural and urban labour markets.
    That is: where Mt is the number of rural to urban migrants in time t, is response function, Wu is the urban wage and W is the rural wage. Since there is unemployment in the town (and it is assumed that there is no unemployment in rural areas), and every migrant cannot expect to find a job there, the model postulates that the expected urban wage with the rural wage. The expected urban wage is the actual urban wage times the probability of getting a job, where Weu = expected urban wage and p = probability of getting a job Here p is expressed a where Eu is urban employment, Uu is urban unemployment and L is total urban work force. Harris and Todaro assume that all members of the urban labour force have equal chances of obtaining the jobs available. So Weu becomes simply the urban wage times the urban employment rate.
    Migration in any given time then depends on three factors:
    (a) The urban-rural wage gap,
    (b) The urban employment rate and
    (c) The responsiveness of potential migrants to the resulting opportunities
    Thus, where Mt = migration in period t and h = the response rate of potential migrants
    This section outlines assumptions in the HT model and the equations that describe it. The structure of the HT model is based on the premise that a fixed wage leads to an outbreak of distortion and urban unemployment. By introducing the concept of expected wage in the urban sector, the HT model presupposes that the fixed wage in one sector is added to the assumptions of the SF model.

    The economy considered in the HT model is a small open economy. In the HT model, the economy consists of two sectors, one is an agricultural rural sector, sector 1, and the other is a manufacturing urban sector, sector 2. There are three kinds of production factors, specific production factor in sector 1, K1, specific production factor in sector 2, K2, and labor, L, which is employed in both sectors and mobile between sectors. In this paper, the specific production factor in the urban sector, K2, includes not only equipment and facilities for production but also social infrastructure, such as airports, roads, and industrial parks, which are related to production. Therefore, an improvement of the social infrastructure means an increase in K2. Accordingly, those specific production factors are immobile between the sectors.

    ARGUMENTS:
    The argument is carried out in the context of evaluating outward-oriented vs inward-oriented trade practices. The basic structure is that of Corden and Findlay, i.e., with intersectoral capital mobility and the small and open country assumption, whereupon necessary modifications are added to allow for the discussions on the effect of the presence of a service sector and risk averse workers;The essence of the results is that protectionist practices are welfare reducing for a two sector HT economy with risk neutral workers but maybe beneficial in the presence of a nontraded service sector or risk averse workers. More precisely, with a third sector, the nontraded service sector, that uses only labor as input, production subsidies to the import competing industry or import tariffs can be welfare improving. When workers are risk averse, the optimal police combination is a positive production subsidy and a positive tariff. Thus, large amount of urban unemployment (or, underemployment as characterized in the service sector in this dissertation) and risk attitude of the workers can be used as justification (as the infant industry argument) for some LDCs’ trade restraining practices.

    Theoretical Implication of the Model: In comparison to the real world and opinions.

    There is no denying the fact that any development project can be evaluated using social cost- benefit analysis. An important part of the social cost of any input is opportunity cost, its value in its next best alternative use. Labour hired for an urban formal-sector project might well be drawn from the urban informal sector also.
    The worker who moves out of the urban informal sector may, in turn, be replaced by someone from the rural sector. In this case, the output lost is that of the worker who was formerly in the rural sector, i.e., the worker at the end of the em­ployment chain. For this reason, some analysts believe that the wage paid to casual agricultural labourers provides a good measure of the social cost of unskilled labour.
    However, this measure, although a good indicator of output foregone through labour reallo­cation, probably understates the true social cost of employing labour, which has other compo­nents that are likely to be significant. One such component is induced migration. No doubt there are both pull and push factors behind internal labour migration that occurs in the course of economic development from rural to urban areas.
    Such migration can result either from favourable economic developments in the towns or from adverse developments in the rural areas. The Harris-Todaro model integrates these two sets of forces in their analysis of the process of labour reallocation that is likely to occur during economic development. This is why the model was sort of innovation in the literature of development economics when it appeared for the first time in 1970′.

    Policy Implications of the Model: In comparison to the real world and opinions.

    The H-T model has far-reaching implications from the policy point of view. For example, if the government of the country concerned were successful in fostering industrial development in an urban area, employment would increase there.

    The effect would be to increase the subjective productivity of getting urban employment in the minds of rural inhabitants. Migration would increase and the eventual effect of the new industrial development could be that urban unem­ployment becomes higher that the level prevailing before the new development took place.
    There will be some level of urban employment which ensures equilibrium in the sense that no further migration takes place. Potential migrants may take a long-term view in arriving at a decision. They may consider that their desireness of obtaining an urban job will be higher after a waiting period of some months. Thus they will compare the present value of the sum of expected urban earnings with that of expected rural earnings.
    They may be content to accept a low wage in the urban informal sector for some time. This might be a rational decision on a long-term basis. The root of the problem is the large difference between earnings in the modern industrial sector and those in the rural areas.
    Often the former are well above the market clear­ing levels for varies reasory. The long-term solution to the problem lies in adopting policies for both urban and rural areas which reduces the real income differences between the two areas.

    4 Conclusion:
    For economic development in LDCs, capital accumulation in the urban sector is a crucial element. The accumulated capital forms many production bases and creates job opportunities in the urban sector. At the same time, the increase in employment raises the wage level in the urban sector. In the Harris–Todaro model, the rising urban wage pushes up the expected wage in the urban sector and consequently encourages workers to migrate from the rural sector to the urban sector. If, in the resulting migration, there are more workers than the number of job opportunities created in the urban sector, some will necessarily be unemployed. Occasionally, the increase in unemployment lowers the per-capita income level before the capital is accumulated. This phenomenon is referred to as Todaro paradox. Previous studies have not, however, determined what effect an increase in capital stock in the urban sector has on urban unemployment.

    LEWIS’S MODEL OF DEVELOPMENT WITH SURPLUS LABOUR

    INTRODUCTION:
    An eminent development economist, Arthur Lewis, put forward his model of “Economic Development with Unlimited Supplies of Labour” which envisages the capital accumulation in the modern industrial sector so as to draw labour from the subsistence agricultural sector. Lewis model has been somewhat modified and extended by Fei and Ranis but the essence of the two models is the same. Both the models (that is, one by Lewis and the other modified one by Fei-Ranis) assume the existence of surplus labour in the economy, the main component of which is the enormous disguised unemployment in agriculture.
    On the other hand, agriculture represents the subsistence or traditional sector using non-reproducible land on self-employment basis and producing mainly for self-consumption with inferior techniques of production and containing surplus labour in the form of disguised unemployment. As a result, the productivity or output per head in the modern sector is much higher than that in agriculture. Though the marginal productivity in agriculture over a wide range is taken to be zero, the average productivity is assumed to be positive and equal to the bare subsistence level.
    LEWIS’S MODEL OF DEVELOPMENT WITH SURPLUS LABOUR:
    In the labour-surplus models of Lewis and Fei-Ranis, the wage rate in the modern industrial sector is determined by the average productivity in the agriculture. To this average productivity is added a margin (Lewis fixes this margin at 30%) which is required for furnishing an incentive for labourers to transfer themselves from the countryside to the urban industries as well as for meeting the higher cost of urban living. In this setting, the model shows how the expansion in the industrial investment and production or, in other words, capital accumulation outside agriculture will generate sufficient employment opportunities so as to absorb all the surplus labour from agriculture and elsewhere.

    With a given initial amount of industrial capital, the demand for labour is given by the marginal productivity curve MP1 .On the basis of the principle of profit maximisation, at the wage rate OW, the modern sector will employ OL1 labour at which marginal product of labour equals the given wage rate OW. With this the total share of labour, i.e., wage in the modern sector, will be OWQ1L1 and WQ1D will be the capitalists’ surplus. Now, Lewis assumes that all wages are consumed and all profits saved and invested.
    When the capitalists will reinvest their profits for setting up new factories or expanding the old ones, the stock of capital assets in the modern sector will increase. As a result of the increase in the stock of industrial capital, the demand for labour or marginal productivity curve of labour will shift outward, for instance from MP1 to MP2 in our diagram. With MP2 as the new demand curve for labour and the wage rate remaining constant at OW, amount of labour OL2 will be employed in the modern sector.
    ASSUMPTIONS:
    (A) Surplus Labour in the Subsistence Sectors:
    The basic assumption of the model is that there exists surplus labour in the subsistence sectors. It includes labour whose marginal productivity is zero as well as that whose marginal productivity is positive but is less than the institutional wage. This labour comprises farmers, agricultural labourers, petty traders domestic servants and women.
    (B) Importance of Saving:
    Another important assumption that Lewis makes is about the savings generated in the capitalist sector and in the subsistence sector. The capitalist sector invests all its savings for its further expansion.
    Those in the subsistence sector, on the other hand squander away their savings, if any in purchase of jewellery & for construction of temples etc. The propensity to save of the people in subsistence sector is also lower when compared with that of those in the capitalist sector.
    C, There is a duel economy; economy is characterized by a traditional over-populated rural subsistence sector furnished with zero MPL, and high productivity modern industrial sector.
    D, The subsistence sector does not make use of ‘Reproducible capital’
    E, The supply of labour is perfectly elastic.

    COMPARISON TO REAL WORLD AND OPINIONS:
    PROFIT AS THE MAIN SOURCE OF CAPITAL FORMATION:
    It is clear from the above analysis of Lewis’s model with unlimited supply of labour that profits constitute the main source of capital formation. The greater the share of profits in national income, the greater the rate of savings and capital accumulation.
    Thus with the expansion of the modern or capitalist sector, the rate of saving and investment as percentage of national income will continuously rise. As a result, rate of capital accumulation will also increase relative to national income. It is of course assumed that all profits or a greater part of the profits is saved and automatically invested.
    Introducing Technical Progress:
    What about the role of technical progress in the type of economic expansion proposed in the Lewis model? Prof. Lewis contends that for the purposes of his analysis, the growth of technical knowledge and the growth of productive capital can be taken to work in the same direction – i.e., to increase profits and wage employment. He argues that to be able to apply new technical knowledge, we ought to have new investments.
    If the new technical knowledge is capital-saving, it could be regarded as equivalent to an increment in capital. And if it happens to be labour-saving, it could be regarded as equivalent to an increment in the marginal productivity of labour. In effect, therefore, both cases would produce the same result—an outward shift in the marginal productivity schedule. As such, Prof. Lewis in his model takes the growth of knowledge and the growth of productive capital to be essentially a ‘single phenomenon’.
    However, the growth of technical knowledge in the subsistence sector is going to be a different kettle of fish. Its effect would be to raise the level of wages. As such, the capitalists’ surplus would be reduced. It is, thus, that the capitalists have a profound and direct interest in holding down the productivity of labour in the subsistence sector.
    CRITICISM:
    A,Lewis Model Neglects the Importance of Labour Absorption in Agriculture:
    A grave weakness of the models of Lewis and Fei-Ranis is that they have ignored the generation of productive employment in agriculture. No doubt, Lewis in his later writings and Fei-Ranis in their modified and extended version of Lewis model have envisaged an important role for agricultural development so as to sustain industrial growth and capital accumulation. But they visualise such an agricultural development strategy that will release labour force from agriculture rather than absorbing them in agriculture. Thus to quote Fei and Ranis – “In such a dualistic setting the heart of the development problem lies in the gradual shifting of the economy’s centre of gravity from the agricultural to the industrial sector through labour reallocation”.
    In this process each sector is called upon to perform a special role – productivity in the agricultural sector must rise sufficiently so that smaller fraction of the total population can support the entire economy with food and raw materials, thus enabling agricultural workers to be released; simultaneously, the industrial sector must expand sufficiently to provide employment opportunities for the released workers labour reallocation must be rapid enough to swamp massive population increases if the economy’s centre of gravity is to be shifted over time.
    B,Assumption of Adequate Labour-Absorptive Capacity of the Modern Industrial Sector:

    Another related shortcoming of development models of Lewis, Fei and Ranis is their assumption that the growth of industrial employment (in absolute amount) will be greater than the growth in labour force (which in India at present is of the order of about 12 million people per year). Because only then the organised industrial sector can absorb surplus labour from agriculture. The employment potential of industrial sector is so little that far from withdrawing labour currently employed in agriculture, it does not seem to be possible for the organised industries and services, on the basis of existing capital-intensive technologies, even to absorb the new entrants to the labour force.

    C, The Assumption of Constant Real Wage Rate in the Modern Sector:
    The assumption of constant real wages to be paid by the urban industrial sector until the entire labour surplus in agriculture has been drawn away by the expanding industrial sector is quite unrealistic. The actual experience has revealed a striking feature that in the urban labour markets where trade unions play a crucial role in wage determination, there has been a tendency for the urban wages to rise substantially over time, both in absolute terms and relative to average real wages even in the presence of rising levels of urban open unemployment. The rise in wages, as explained above, seriously impairs the development process of the modern sector.
    D, It neglects the Labour-Saving nature of Technological Progress:
    A serious lacuna of the Lewis model from the viewpoint of employment creation is its neglect of the labour-saving nature of technological progress. It is assumed in the model, though implicitly, that rate of employment creation and therefore of labour transfer from agriculture to the modern urban sector will not be proportional to the rate of capital accumulation in the industrial sector.
    Accordingly, the greater the rate of growth of capital formation in the modern sector, the greater the creation of employment opportunities in it. But if capital accumulation is accomplished by labour-saving technological change, that is , if the profit made by the capitalists are reinvested in more mechanised labour- saving capital equipment rather than in existing types of capital, then employment in the industrial sector may not increase at all.

    E, Lewis Model Ignores the Problem of Aggregate Demand:
    A serious factor which can slow down or even halt the expansionary process in the Lewis model is the problem of deficiency of aggregate demand. Lewis assumes, though implicitly, that no matter how much is produced by the capitalist or modern sector, it will find a market. Either the whole increment in output will be demanded by the people in the modern sector itself or it will be exported. But to think that entire expansion in output will be disposed of in this manner is not valid. This is because a good part of the demand for industrial products comes from the agricultural sector.
    Conclusion:
    Despite several limitations and drawbacks, the Lewis model retains a high degree of analytical value. It clearly points out the role of capital accumulation in raising the level of output and employment in labour-surplus developing countries. The model makes a systematic and penetrating analysis of the growth problem of dual economies and brings out some of crucial importance of such factors as profits and wages rates in the modern sector for determination the rate of capital accumulation and economic growth. It underlines the importance of inter-sectoral relationship (i.e., the relationship between agriculture and the modern industrial sector) in the growth process of a dual economy.

  75. Name: Okorie Amarachi Ogonnaya
    Reg. No: 2018/249116
    Email address: amarachiokorie00 @gmail.com
    Department:Library and information science

    LEWIS FEI- RANIS MODEL OF ECONOMIC GROWTH

    The Fei–Ranis model of economic growth is a dualism model in developmental economics or welfare economics that was developed by John C. H. Fei and Gustav Ranis and can be understood as an extension of the Lewis model. It is also known as the Surplus Labor model.
    It recognizes the presence of a dual economy comprising both the modern and the primitive sector and takes the economic situation of unemployment and underemployment of resources into account, unlike many other growth models that consider underdeveloped countries to be homogenous in nature.
    According to this theory, the primitive sector consists of the existing agricultural sector in the economy, and the modern sector is the rapidly emerging but small industrial sector. Both the sectors co-exist in the economy, wherein lies the crux of the development problem.
    Development can be brought about only by a complete shift in the focal point of progress from the agricultural to the industrial economy, such that there is augmentation of industrial output.
    This is done by transfer of labor from the agricultural sector to the industrial one, showing that underdeveloped countries do not suffer from constraints of labor supply.
    At the same time, growth in the agricultural sector must not be negligible and its output should be sufficient to support the whole economy with food and raw materials. Like in the Harrod–Domar model, saving and investment become the driving forces when it comes to Fei and Ranis emphasized strongly on the industry-agriculture interdependency and said that a robust connectivity between the two would encourage and speedup development. If agricultural laborers look for industrial employment, and industrialists employ more workers by use of larger capital good stock and labor-intensive technology, this connectivity can work between the industrial and agricultural sector.
    Also, if the surplus owner invests in that section of industrial sector that is close to soil and is in known surroundings, he will most probably choose that productivity out of which future savings can be channelized. They took the example of Japan’s dualistic economy in the 19th century and said that connectivity between the two sectors of Japan was heightened due to the presence of a decentralized rural industry which was often linked to urban production.
    According to them, economic progress is achieved in dualistic economies of underdeveloped countries through the work of a small number of entrepreneurs who have access to land and decision-making powers and use industrial capital and consumer goods for agricultural practices.
    ASSUMPTIONS OF THE MODEL
    (1.)There is a dual economy divided into a traditional and stagnant agricultural sector and an active industrial sector.
    (2.) The output of the agricultural sector is a function of land and labor alone.
    (3. )There is no accumulation of capital in agriculture except in the form of land reclamation.
    (4.) Supply of land is fixed
    (5. )Population growth is taken as an exogenous phenomenon.
    The real wage in the industrial sector remains fixed and is equal to the initial level of real income in the agricultural sector. It is called an institutional wage.
    some reasons, and business place shifting.
    THE HARRIS-TODARO MODEL OF MIGRATION
    The Harris -Todaro model of migration was named after John R.Harris and Michael Todaro, It is an economic model developed in1970. This model is a pioneering study in the field encompassing rural-urban migration. The classical theory is used in development economics and is an economic illustration of migrants’ decision on expected income differentials between rural agricultural areas and the urban areas.
    Also,Todaro migration model is a theory that explains rural-urban migration as an economically rational process despite high urban unemployment. Migrants calculate (present value of) urban expected income (or its equivalent) and move if this exceeds average rural income.
    Harris-Todaro model is an equilibrium version of the Todaro migration model that predicts that expected incomes will be equated across rural and urban sectors when taking into account informal sector activities and outright unemployment.
    It was used in development economics and welfare economics to explain some of the issues concerning rural-urban migration
    In the model an equilibrium is attained when the expected wage in urban areas (actual wage adjusted for the unemployment rate),is equal to the marginal product of an agricultural worker.

    ASSUMPTIONS OF HARRIS-TODARO MIGRATION MODEL
    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.Also the model assumes that unemployment is non-existent in the rural agricultural sector.It assumed that rural agricultural production and the subsequent lab our market is 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(0)since the expected rural income equals the expected urban income. However,in this equilibrium there will be positive unemployment in the urban sector. There are two regions: rural (agricultural) and urban (industrial) in two sector economic model. The crucial assumption of the Harris and Todaro’s model is that workers base their migration decision on their expected incomes at urban (industrial) areas. As the basic model is static, the expected income is just the weighted average of the urban wage and the unemployment benefit, the weights being the probabilities to find and not to find an urban job. The model assumes that the rate of rural-urban (m= M/LR) is a function of:
    i)The probability that an urban labour can successfully find a modern sector job, which can be expressed as a positive function of the current urban employment rate EU/LU,or LU-EU/LU, a negative function of urban unemployment rate.ii) The urban-rural real income differentialis expressed asYU/YR= W (W greater than 1), Besides, migration will also be related to,
    iii) Other factors (Z), such as distance, personal conduct, urban amenities. Where m= Rate of migration from rural to urban areas M= Actual volume of rural-urban migration LR= Rural labour forceLU= Urban labour forceYU= Urban real income YR=Rural real income W= Ratio between rural/urban real incomeTherefore, the basic rural-migration migration model is expressed as:(rural-urban migration) m = function of (current urbanemployment rate, urban-rural real income differential, and personal factors).Thus, (rural-urban migration rate) m= f (EU /LU, W,Z) …. 1.1= f (EU /LU) (holding W and Z constant)= Function of the ratio between the level of urbanemployment and urban labour force.
    Where f (EU /LU) is greater than Zero;f (W) is greater than Zero, and f (Z) may have +ve or – ve values;(here fis the time derivative of three elements)That is, migration rate is a function of the ratio between the level of urban employment and urban labour force, or the probability to find a job in anurban industrial sector.Besides, urban labour force growth can be expressed as: lU/LU=r + LR/LU(m)= r + LR/LU f (EU/LU) ..1.2r= natural growth rate of rural/urban labour forcelU= time derivative of LU (urban labour force)That is, time derivative of urban labourforce growth rate is a function of urban growth rate and the probability of finding a job in a modern Urban sector.

    CONCLUSION

    The fundamental contribution of Harris and Todaro’s rural-urban two sector migration model was to build a model that fit the stylized facts of the labour market. On the lines of the theory, developing countries adopted program on integrated rural development which encouraged anincrease in the rural traditional sector wage. The theory proves that the higher the unemployment rate, the lower is the probability of new migrants from the countryside actively seeking formal sector employment who are unable to find it.

  76. Avatar Ugwu Emmanuel Kanayo says:

    NAME: UGWU EMMANUEL KANAYO
    REG NO: 2017/251748
    EMAIL: Kanayoemma85@gmail.com
    ECONOMICS/POLITICAL SCIENCE
    (C .S.S)
    A BREIEF SUMMARY OF THE LEWIS- FEI –RANIS MODEL OF ECONOMIC GROWTH AND HARRIS-TODRO MODEL OF MIGRATION AND IT”S APPLICATION TO NIGERIA ECONOMY.
    Lewis (1954) proposed a seminal theory of dualistic economic development for over-populated and under-developed economies with vast amounts of surplus agricultural labour for which he was later to be awarded the 1979 Nobel Prize in Economics. Economic growth in such an economy can be achieved by rapid capital accumulation in the non-agricultural (industrial and service) sector, facilitated by drawing surplus labour in the agricultural sector. In the Lewis theory, an economy transits from the first, labour-surplus “stage” to the second, labour-scarce “stage” of development. Later, Ranis and Fei (1961) formalised the Lewis theory and defined three “phases” of dualistic economic development by sub-dividing the first stage in the Lewis model into two phases. Thus, the second labour-scarce stage of the Lewis model corresponds to phase three of the Ranis-Fei model.
    But one of the biggest drawback of the lewis model was the undermining of the role of agriculture in boosting the growth of the industrial sector. He did not acknowledge that the increase in productivity of labour should take place prior to the labour shift to two sectores. However, these two ideas were taken into account in the FEI- RANIS dual economic growth model.
    HARRIS-TODARO MODEL OF MIGRATION
    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. John R. Harris and Michael P. Todaro presented the seminal ‘Two sector model’ in American Economic Association, 1970. This model is a pioneering study in the field encompassing rural-urban migration. 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 situation 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 model is that economic incentives, earnings differentials, and the probability of getting a job at the destination have influence on the migration decision. In other words, this theory put forward that rural-urban migration will occur when the urban expected wage exceeds the rural obtain wage.
    CONCLUSIONS
    below, are distinguished by the marginal productivity of agricultural labour. The entry into each phase is marked three turning points:
    • The breakout point leads to phase one growth with redundant agricultural labour.
    • The shortage point leads to phase two growth with disguised agricultural unemployment.
    • The commercialisation point leads to phase three of self-sustaining economic growth with the commercialisation of the agricultural sector. The Lewis-Ranis-Fei theory of dualistic economic development therefore provides a suitable theoretical framework for studying the growth path of labour-surplus developing economies.
    This shifting of labor can take place by the landlords’ investment activities and by the government’s fiscal measures. However, the cost of shifting labor in terms of both private and social cost may be high, for example transportation cost or the cost of carrying out construction of buildings. In addition to that, per capita agricultural consumption can increase, or there can exist a wide gap between the wages of the urban and the rural people. These three occurrences- high cost, high consumption and high gap in wages, are called as leakages , and leakages prevent the creation of agricultural surplus. In fact, surplus generation might be prevented due to a backward-sloping supply curve of labor as well, which happens when high income-levels are not consumed. This would mean that the productivity of laborers with rise in income will not rise. However, the case of backward-sloping curves is mostly unpractical.
    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 is 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 drive of rural-urban migration, while urban unemployment is local governments’ main concern in many cities.

  77. Avatar Ugwu Emmanuel Kanayo says:

    NAME: UGWU EMMANUEL KANAYO
    REG NO: 2017/251748
    EMAIL: Kanayoemma85&gmail.com
    ECONOMICS/POLITICAL SCIENCE
    (C .S.S)
    A BREIEF SUMMARY OF THE LEWIS- FEI –RANIS MODEL OF ECONOMIC GROWTH AND HARRIS-TODRO MODEL OF MIGRATION AND IT”S APPLICATION TO NIGERIA ECONOMY.
    Lewis (1954) proposed a seminal theory of dualistic economic development for over-populated and under-developed economies with vast amounts of surplus agricultural labour for which he was later to be awarded the 1979 Nobel Prize in Economics. Economic growth in such an economy can be achieved by rapid capital accumulation in the non-agricultural (industrial and service) sector, facilitated by drawing surplus labour in the agricultural sector. In the Lewis theory, an economy transits from the first, labour-surplus “stage” to the second, labour-scarce “stage” of development. Later, Ranis and Fei (1961) formalised the Lewis theory and defined three “phases” of dualistic economic development by sub-dividing the first stage in the Lewis model into two phases. Thus, the second labour-scarce stage of the Lewis model corresponds to phase three of the Ranis-Fei model.
    But one of the biggest drawback of the lewis model was the undermining of the role of agriculture in boosting the growth of the industrial sector. He did not acknowledge that the increase in productivity of labour should take place prior to the labour shift to two sectores. However, these two ideas were taken into account in the FEI- RANIS dual economic growth model.
    HARRIS-TODARO MODEL OF MIGRATION
    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. John R. Harris and Michael P. Todaro presented the seminal ‘Two sector model’ in American Economic Association, 1970. This model is a pioneering study in the field encompassing rural-urban migration. 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 situation 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 model is that economic incentives, earnings differentials, and the probability of getting a job at the destination have influence on the migration decision. In other words, this theory put forward that rural-urban migration will occur when the urban expected wage exceeds the rural obtain wage.
    CONCLUSIONS
    below, are distinguished by the marginal productivity of agricultural labour. The entry into each phase is marked three turning points:
    • The breakout point leads to phase one growth with redundant agricultural labour.
    • The shortage point leads to phase two growth with disguised agricultural unemployment.
    • The commercialisation point leads to phase three of self-sustaining economic growth with the commercialisation of the agricultural sector. The Lewis-Ranis-Fei theory of dualistic economic development therefore provides a suitable theoretical framework for studying the growth path of labour-surplus developing economies.
    This shifting of labor can take place by the landlords’ investment activities and by the government’s fiscal measures. However, the cost of shifting labor in terms of both private and social cost may be high, for example transportation cost or the cost of carrying out construction of buildings. In addition to that, per capita agricultural consumption can increase, or there can exist a wide gap between the wages of the urban and the rural people. These three occurrences- high cost, high consumption and high gap in wages, are called as leakages , and leakages prevent the creation of agricultural surplus. In fact, surplus generation might be prevented due to a backward-sloping supply curve of labor as well, which happens when high income-levels are not consumed. This would mean that the productivity of laborers with rise in income will not rise. However, the case of backward-sloping curves is mostly unpractical.
    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 is 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 drive of rural-urban migration, while urban unemployment is local governments’ main concern in many cities.

  78. Avatar Nto Sunday says:

    NAME: NTO SUNDAY EKE
    REG NO:2017/242943
    E-mail:ntosunday9@gmail.com
    Blogspot:Joshbalsam.blogspot. com

    THE HARRIS –TODARO MODEL OF MIGRATION

    INTRODUCTION
    The wage in cities is higher than the one obtainable in rural areas .Given this wage differential, people rationally migrate into the cities hoping to get an urban job. But the probability of getting an urban job is not completely dependent on that rational move ,rather it depends on the rate of employment in urban area. Consequentially, under-developed countries are faced with the problem of urban unemployment which is caused majorly by rural-urban migration. The Todaro Paradox occurs when job creation in urban area further leads to unemployment.
    ASSUMPTIONS OF THE HARRIS –TODARO MODEL OF MIGRATION
    (1)Urban wage is institutionally and legally fixed .
    (2)Small open economy; the economy considered in Harris -Todaro model is a small open economy.
    (3)Two sector economy; One an agricultural rural sector and the other , manufacturing urban sector economy..
    (4)The equilibrium is reached when the expected wage in urban areas is equal to the marginal product of an agricultural worker.
    THE CORE AND BASIC CHARACTERISTICS OF HARRIS-TODARO MODEL OF MIGRATION
    ( 1)Real wages are higher in urban formal sector jobs than in rural traditional –sector jobs.
    (2)To be hired, the worker must be physically present in the urban areas where the formal sector jobs are located.
    (3)Any temporal difference in the expected wages between one sector and another is eroded as workers migrate from the low-expected-wage labor market to the high-expected-wage labor market.
    (4)Rational economic consideration primarily stimulates migration.
    THE HARRIS-TODARO MODEL OF MIGRATION
    The Harris-Todaro Model of migration named after John R.Harris and Michael Todaro, is an economic Model developed in 1970 and used in development economics to explain the issues concerning rural –urban Migration. The Harris-Todaro model is a pioneering general equilibrium model describing the process of rural-urban labour migration [due to wage differentials] and the existence of urban unemployment in developing countries.
    The most significant feature of this model is that it made it possible for analysts to deal with unemployment, by including the unemployed workers who were waiting for job opportunities in the urban sector.
    Given the wage rigidity in the urban area ,flexibility of wage in rural area and the mobility of labour assumptions. It is possible for workers to move freely between sectors. Workers in the rural area can easily migrate to the urban area in search of better wage. Some may succeed while others are pushed to the urban informal sectors .This migration causes a huge pressure on the facilities and infrastructures in urban area with attendant unemployment disequilibrium.

    THEORECTICAL IMPLICATIONS OF THE HARRIS –TODARO MODEL
    The theoretical implications of this model includes the following; Firstly, the model helps us to analyze the social cost of unskilled labour (which is the wage formerly paid to the casual agricultural labourer before the worker moved out of the agricultural sector).
    Secondly, it helps us understand the Pull and push factors behind Migration , say induced Migration. This kind of migration can result either from favourable economic developments in the towns(pull factors) or from adverse developments in the rural areas(push factors).

    POLICY IMPLICATIONS OF THE HARRIS-TODARO MODEL
    The Harris-Todaro Model has far-reaching implications from the purview of policy .It poses the policy questions of “what is the most effective policy tool to solving the problem of rural-urban migration which is ravaging many developing economies?
    The first best policy would be creating new job opportunities in the urban area while simultaneously placing an institutional restriction on rural-urban migration.
    Again, The long-term solution to the problem of rural-urban migration lies in adopting policies that aims at biased yet systemic development of the rural area.(Electrification, provision of portable water, building of viable firms in the rural areas etc)
    These two policy solutions, without doubt can both in the in the short-run and long-run solve to a reasonable extent the problem of rural-urban migration.

    THE NIGERIAN ECONOMY AND THE HARRIS-TODARO MODEL
    Let’s attempt a contextualization of the Harris-Todaro model to the Nigerian economy this way. The Harris-Todaro model explains theoretically and practically the ravaging issue of rural-urban migration in Nigeria .Rural dwellers or laborers leave the agrarian sector for the cities majorly because of the perceived income and standard of living differentials. A large number of these migrants are insufficiently skilled in relation to being employable in the urban- manufacturing sector. Consequently, they end up working in the urban informal sectors. Again the number of people leaving for the cities’ white collar jobs are usually greater than the available jobs therein , this further creates an urban unemployment and the undue stressing of the urban facilities and infrastructures.
    This undue stress on urban facilities and infrastructures consequent of over population and congestion will lead to a decrease in the standard of living in the cities since many struggle to use this facilities and infrastructures at the same time.
    Put differently ,Rural- urban migration if unchecked as in Nigeria leads to reduction in the standard of living of urban dwellers.
    One of the positive checks to this problem include creating more urban employment while simultaneously placing an institutionally restriction on migration.
    Long term-wise, the problem can be eliminated by simultaneously developing the rural and urban area with a biased attention given to the former. Reason because, any perceived difference in wage /standard of living by the rural dwellers will push them to leave the rural area.

    A SUMMARY OF THE LEWIS MODEL OF ECONOMIC GROWTH
    In 1954 sir Arthur Lewis published a paper “Economic Development with unlimited supplies of labour”, after its publication many economists have either cited it or made the it the center of their discourse when analyzing economic growth.
    The focus of the model is “ dual Economics”- small-urban-industrialized sectors of economic activity surrounded by a large –rural-traditional sector.
    The central theme of the model as that, labor in dual economies is available to the urban, industrialized sector at a constant wage determined by minimum levels of existence in traditional family farming because of disguised unemployment in agriculture, there is practically unlimited supply of labor and available of industrialization, at least at the early stages of development. At some later point in the history of dual economics, the supply of labor is exhausted then only a rising wage rate will draw more labor out of agriculture.
    “Surplus labour” means the existence of such a huge population in the agricultural sector that the marginal product of labour is zero. So, if few workers are removed from land, the total product remains unchanged.
    The essence of the development process in such an economy is “the transfer of labour resources from the agricultural sector, where they add nothing to production, to the more modern industrial sector, where they create a surplus that may be used for further growth and development.”In Lewis model the transformation process or the process of structural change starts by an autonomous expansion in demand in industry as a result of changes in domestic consumer tastes, in government purchases, or in international markets.
    The central point is that labour shifts from agriculture into industry. The supply of labour from agriculture to industry is “unlimited” at the given urban wage. Lewis postulates the existence of a subsistence sector with surplus labour and he sees in this the seed for the subsistence sector. One major characteristic of the capitalist sector is that it uses reproducible capital and that it produces profit.
    APPLICATION OF LEWIS MODEL OF ECONOMIC GROWTH TO NIGERIA ECONOMY
    Despite the lewis’ model having an overarching importance in development Economics. Some of its assumptions are incongruent with contemporary less developed countries, particularly Nigeria. Some of these identified flaws include;
    Firstly , the model assumes that ‘surplus’ labor exists in rural areas while there is full employment in the urban areas. There is no surplus labour existing in the LDC, the laborers available in the agricultural in most less developed countries are insufficient to the number of people needed to produce a self sufficient food production for the entire country. The import dependent nation like Nigeria depend on other countries for agricultural produce and not just manufactured goods.Again there is wide urban unemployment existing in Nigeria.
    Secondly, the model implicitly assumes that the rate of labor transfer and employment creation is proportional to the rate of capital accumulation. The Harris-Todaro model helps us to understand this better as this rural-urban migration does not always end in employment in the urban manufacturing sector. Some of these migrants are unskilled in relation to basic skills needed in the urban and such remain unemployable.

    A SUMMARY OF SURPLUS LABOR THEORY
    The Fei–Ranis surplus labour is a dualism model in developmental economics or welfare economics that has been developed by John C. H. Fei and Gustav Ranis and can be understood as an extension of the Lewis model. It is also known as the Surplus Labor model. Lewis model did not pay enough attention to the importance of agricultural sector in promoting industrial growth, but Fei-Ranis model of dual economy explains how the increased productivity in agricultural sector would become helpful in promoting industrial sector. In this respect, it presents three stages whereby under developed countries moves from stagnation to self-sustained economic growth. According to this theory, underdeveloped economies consist of agricultural sector and the modern sector which is emerging but has a small industrial sector. The agricultural and modern sectors co-exist in the economy. Development can occur only when there is a shift in the center of attention of progress from the agricultural to the industrial sector, such that there is an enhancement of industrial output. This is achieved by the transfer of labor from the agricultural sector to the industrial sector, this shows that undeveloped countries do not suffer from deficient labor supply. While this is being done, growth in the agricultural sector must not be viewed as unimportant, and its output should be sufficient to support the entire economy.

    STAGES OF THE SURPLUS LABOUR THEORY
    The first stage of the Fei-Ranis model is very similar to Lewis. Disguised unemployment comes to being because the supply of labor is perfectly elastic and marginal productivity of labor equals zero (MPL = 0).
    In the second stage of the Fei-Ranis model, agricultural workers add to agricultural output but they produce less than institutional wage they get
    In the third stage of the Fei-Ranis model, the take-off situation comes to an end and there begins the era of self-sustained growth where the farm workers produce more than the institutional wage they get.

    THE SURPLUS LABOUR THEORY AND NIGERIAN ECONOMY
    1.One of the assumptions of Fei and Ranis is that MPPL is zero during the early phases of economic development. In a such developing such as the Nigeria, there is a constant rural-urban migration which makes the number of people in rural agriculture to be insufficient to producing a food self sufficiency. The marginal product of labour can only be zero with the assumption of fixed supply of Land and full employment. The available supply of land is somewhat unexplored.

    2. Fei and Ranis assume a close model and hence there is no presence of foreign trade in the economy. The Nigeria we know and live in is an import independent country, where almost the consumer goods are imported from abroad even amidst worsening foreign exchange rate. The assumption such as this doesn’t hold in Nigeria.
    3. Stagnation has not been taken into consideration, and no distinction is made between labor through family and labor through wages. There is also no explanation of the process of self sustained growth, or of the investment function. There is complete negligence of terms of trade between agriculture and industry, foreign exchange, money and price.

  79. Avatar Ogbu Julieth Chinenye (2017/249389) says:

    Name:Ogbu Julieth Chinenye
    Reg. Num: 2017/249389
    Dept.: Combined Social Sciences (Economics Sociology)
    E-mail: julieth.ogbu.249389@unn.edu.ng

    THE LEWIS-RANIS-FEI MODEL
    In 1954, John C. H. Fei and Gustav Ranis proposed a model in developmental economics that is popularly known as the Fei-Ranis model of economic growth, which is also called the surplus-labor model. This is the most focused area for researchers that regards the dualistic economy. It is also termed as the key area that contributes greatly to the academic discipline of economic development in the 21st century (Kirkpatrick and Barrientos 2004). Fei-Ranis model is grokked as an extension of the Lewis Model. This Lewis model comprises of the modern and primitive sectors that explain the economic condition of the resources of both unemployment and under unemployment.
    The modern sector is prominent and is known to be a small industrial sector that exists in the economy while the primitive sectors comprise the agricultural economy. The two sectors are abode by development issues which can be conquered by a shift from the agricultural economy to the industrial economy in such a way that there is a massive win in the output of the industrial economy. To achieve this, labor is moved from the agricultural sector to the industrial sector, thereby ensuring that the underdeveloped countries will not have anything to do with the constraints of labor supply.
    Hence, the agricultural sector’s growth is then neglected whilst its output has to be adequate to uphold the entire economy with both food and raw material. So the savings and investments automatically become the impetus for the economic development of underdeveloped countries. The major difference between this Lewis model and other growth models is that it does not regard the underdeveloped countries as having homogenous nature.
    The primitive sector as described by Lewis-Fei-Ranis consists of the existing, rural, and subsistence sectors in the economy, while the modern sector is the forthcoming but small urban, capitalist sector. In the Primitive (subsistence) sector, the population is relatively huge to capital and natural resources, constantly having zero, negative, or very low marginal productivity of labor. While in the modern sector, the population has a positive marginal product. In other words, there is disguised unemployment or underemployment, which is an essential reservoir of labor supply to the capitalist sector. This population could be lowered without reducing output.
    The supply of labor can be influenced abundantly by the following factors:
    a. High population growth as a result of high birth rate and low mortality rate.
    b. Females released from domestic works
    c. Workers from other causal jobs, etc.
    This indicates that the supply of labor surpasses the demand for labor thereby making the Labour market in favor of the capitalist sector and when this happens, the capitalist sector will keep the wage constant.

    THREE PHASES OF LEWIS-RANIS-FEI MODEL
    In 1961, Ranis and Fei formalized Lewis’s theory. This theory was then combined with Rostow’s in the year 1956, and there they emerged three different linear-stages-of-growth theory. The two well-known stages of economic development were split into three phases, which are defined by the marginal productivity of agricultural labor.
    During the pre-condition stage, they assumed the economy to be stagnant. Then the breakout point marks the creation of an infant non-agricultural sector and the entry into the first phase called phase one. The Agricultural labor starts to be reallocated to the non-agricultural sector. Because of the abundance of surplus agricultural labor, its marginal productivity is then extremely low and average labor productivity defines the agricultural institutional wage.
    At the allocation of the redundant agricultural labor force, the agricultural marginal productivity of labor starts to increase even though it is still lower than the institutional wage. This point is known as the shortage point, the economy enters phase two of development. Hence, the two remaining agricultural unemployment is then absorbed.
    When this process is completed, the economy reaches the commercialization point and switches into the final phase. At this third stage, the agricultural labor market is fully commercialized.

    ASSUMPTIONS:
    There are eight (8) basic assumptions of Fei-Ranis model:
    1. The first assumption on the Fei-Ranis model is that there exists a dual economy in the system. So the capitalist (K) sector is active and progressive in its form while the agricultural (A) sector is passive and fixed.
    2. The two sectors (A and K) take advantage of the land. The supply of land is considered to be fixed here.
    3. Population is determined by the change that comes from outside the model rather than those present in the model. This simply means that population is termed as an “exogenous factor”.
    4. In the industrial sector, the initial level of productivity (wage rate, which is popularly known as “constant institutional wage rate”) is fixed.
    5. Since labor acts as a variable factor in the A and K sectors, there are steady and none changing returns to scale with regards to labor.
    6. Except in the land reclamation form, there is no accumulation of the A and K sectors. This means that if there is no major progress in the A sector, it becomes none financially rewarding.
    7. The output of the A sector depends on land and labor while the output of the K sector depends on land and capital.
    8. At some point, the marginal product of labor is zero. So, such labor is transferrable from A sector to K sector, where the capacity of the productivity is more without bearing any loss on the A sector.

    HARRIS AND TODARO MODELS
    The canonical model of rural-urban migration was developed by Harris (H) and Todaro (T) in 1970. This model is popularly referred to as Harris-Todaro (H-T) model. The H-T model clearly explains the migration of workers in an economic system. This system which comprises of the rural and urban sector are differentiated by the class of goods produced, the technology of production and the process of wage determination. The production of agricultural goods is the focus of the rural sectors. The H-T model is known as the starting point of classic rural-urban migration theory.
    In 1969, Todaro built a seminal model that clearly analyzes the rural-urban migration in the developing countries where he extended and formalized ideas from many authors that succeeded Lewis (1954). The main assumption of the H-T model is that for a rural worker to make the decision to move to another country, it will be based on the expected differential wage. This act of migration according to Todaro is seen as an investment decision that is closely connected to the net returns. However, these net returns solely depend on the probability of getting a job in the modern sector against getting a job in the traditional urban sector. H-T model analyzes the probability in such a way that it produces and affects the creation of urban employment and the number of unemployed urban workers. The major aim of the H-T model is to expound how the rate of employment looks under the equilibrium below full employment in both the short and long term.
    In 1970, the H-T model showcased their general equilibrium analysis in a way that the artificial upholding of the wage difference in both the rural and urban sectors yields an equilibrium that is not efficient. Even though the informal sector is not included in the model, the idea of the expected wage is retained. So the expected wage is being determined by either employment or unemployment in the urban sector
    In calculating the long-term equilibrium (when the net rural-urban migratory flow is not present) there has to be a migratory flow that is emanating from the rural sector to the urban sector.
    Hence, the expected urban wage is then higher than the rural wage. In this way, the long-term equilibrium is attained when the urban worker population reaches a level that the expected urban wage is equal to the rural wage. The point that equality occurred is referred to as the H-T condition.

    ASSUMPTIONS OF HARRIS AND TODARO MODELS.
    The following assumption are valid for H-T models:
    1. In the urban sector, the productive process is been described by the Cobb-Douglas production function.
    2. Even though goods and labor markets are perfectly competitive. There are different segments in the labor market because of a high minimum urban wage which is usually determined politically. So in the rural sector, the real wage which is perfectly flexible is equal to the marginal productivity of labor.
    3. In the urban sector, the minimum wage is assumed to be fixed at a level above the equilibrium in the labor market.
    4. The individual price of agricultural goods/manufactured goods varies according to the scarcity of agricultural and manufactured goods.
    5. By assumption there are only two sectors and rural prices which are entirely flexible. This means that there are many employment opportunities in the rural areas and people can be employed there at any point in time.

    CONCLUSION
    The Harris-Todaro model is more realistic when it comes to developing countries, especially Nigeria since the labor is shifted to the urban industrialized sector from the rural agricultural sector to increase the employment opportunities and in-turn increasing production thereby boosting the economy. This is because the H-T model focuses on the migration of the two sectors (rural and urban sectors) of the economic system. Unlike that of the Lewis model that proved to be unrealistic by assuming that there is no unemployment in the urban sector. This statement is not true for developing and underdeveloped countries. However, during the H-T model, migration of rural-urban emerges and the number of employments in the urban sector will be the same as the number of migrants.
    The rural wages are lower than the minimal urban wage. So when more job opportunities are created in the urban sector, the minimum expected wage rises, and the rural-urban migration will lead to a high level of urban employment. To get rid of the urban unemployment, H-T employs that we pay a relatively large payment as tax to subsidize the minimum wage.

  80. Avatar ONAH STANLEY CHINONSO says:

    NAME: ONAH STANLEY CHINONSO
    REG NO:2017/249272
    DEPARMENT: LIBRARY AND INFORMATION SCIENCE

    A SUMMARY OF THE LEWIS-RANIS MODEL OF ECONOMIC GROWTH
    In 1954 Sir Arthur Lewis published a paper “Economic Development with unlimited supplies of labour”, after its publication many economists have either cited it or made the it the center of their discourse when discussing economic growth.
    The focus of the model is “ dual Economics”- small-urban-industrialized sectors of economic activity surrounded by a large –rural-traditional sector.
    The central theme of the model as that, labor in dual economies is available to the urban-industrialized sector at a constant wage determined by minimum levels of existence in traditional family farming because of disguised unemployment in agriculture, there is practically unlimited supply of labor and available of industrialization, at least atthe early stages of development.At some later point in the history of dual economics, the supply of labor is exhausted then only a rising wage rate will draw more labor out of agriculture.With their acute material poverty, it is difficult at first sight to imagine how the overpopulated countries can increase their savings without great hardships. On the contrary, their surplus population on the land seems to offer a major unused potential for growth, waiting only for the ‘missing component’ of outside capital to assist them in the process.Moreover, their rapid rates of population growth lend themselves to calculations of aggregate capital requirements which must be made available if their per capita incomes are to be maintained or raised.
    “Surplus labor” (or disguised unemployment) means the existence of such a huge population in the agricultural sector that the marginal product of labor is zero. So, if a few workers are removed from land, the total product remains unchanged.
    The essence of the development process in such an economy is “the transfer of labor resources from the agricultural sector, where they add nothing to production, to the more modern industrial sector, where they create a surplus that may be used for further growth and development.”In Lewis model the transformation process or the process of structural change starts by an autonomous expansion in demand in industry as a result of changes in domestic consumer tastes, in government purchases, or in international markets.
    The central point is that labor shifts from agriculture into industry. The supply of labor from agriculture to industry is “unlimited” at the given urban wage, owing to the relative sire of the agricultural labor forces at the margin.
    When these profits are ploughed back into industrial capital formation, demand for industrial output (both for consumption goods by newly employed workers and investment by capitalists) rises, causing further shifts of labor out of agriculture into industry.
    APPLICATION TO NIGERIA ECONOMY
    It is to be noted that although the Lewis model of development is both simple and roughly in conformity with the historical experience of economic growth in the West, it has three key assumptions which are sharply in contrast with the realities of underdevelopment particularly in Nigeria.

    First, the model assumes that ‘surplus’ labor exists in rural areas while there is full employment in the urban areas. In reality, exactly the reverse is true in Nigeria: there is substantial open unemployment in urban areas but almost no general surplus labor in rural locations
    Second, the model implicitly assumes that the rate of labor transfer and employment creation is proportional to the rate of capital accumulation. So, if there occurs labor-saving capital accumulation, the employment implications of the model will be modified.
    The third key assumption at variance with reality is the notion of the continued existence of constant real urban wages until the supply of small surplus labor is exhausted. Says M.P. Todaro, “One of the most striking features of the urban wage situation in almost all developing countries, however, has been the tendency for these wages to rise substantially, both in absolute terms and relative to average rural incomes, even in the presence of rising levels of open unemployment.”
    A SUMMARY OF SURPLUS LABOR THEORY
    The Fei–Ranis model of economic growth is a dualism model in developmental economics or welfare economics that has been developed by John C. H. Fei and Gustav Ranis and can be understood as an extension of the Lewis model. It is also known as the Surplus Labor model. Lewis model did not pay enough attention to the importance of agricultural sector in promoting industrial growth, but Fei-Ranis model of dual economy explains how the increased productivity in agricultural sector would become helpful in promoting industrial sector. In this respect, it presents three stages whereby under developed countries moves from stagnation to self-sustained economic growth. According to this theory, underdeveloped economies consists of agricultural sector and the modern sector which is emerging but has a small industrial sector. The agricultural and modern sectors co-exist in the economy. Development can occur only when there is a shift in the center of attention of progress from the agricultural to the industrial sector, such that there is an enhancement of industrial output. This is achieved by the transfer of labor from the agricultural sector to the industrial sector, this shows that undeveloped countries do not suffer from deficient labor supply. While this is being done, growth in the agricultural sector must not be viewed as unimportant, and its output should be sufficient to support the entire economy.

    STAGES OF THE LEWIS-FEI-RANIS SURPLUS LABOUR MODEL
    1. The first stage of the Fei-Ranis model is very similar to Lewis. Disguised unemployment comes to being because the supply of labor is perfectly elastic and marginal productivity of labor equals zero (MPL = 0).
    2. In the second stage of the Fei-Ranis model, agricultural workers add to agricultural output but they produce less than institutional wage they get. In other words, in the second stage the labor surplus exists where average product of labor is greater than marginal product of labor, but it is not equal to subsistence institutional wages.
    3. In the third stage of the Fei-Ranis model, the take-off situation comes to an end and there begins the era of self-sustained growth where the farm workers produce more than the institutional wage they get. In this stage of economic growth the surplus labor comes to an end and the agricultural sector becomes a commercialized sector.

    APPLICATION OF SURPLUS LABOUR TO NIGERIA ECONOMY
    Fei–Ranis surplus labour has been criticized on multiple grounds, although if the model is accepted, then it will have a significant theoretical and policy implications on the underdeveloped countries’ efforts towards development and on the persisting controversialstatements regarding the balanced vs. unbalanced growth debate.
    Fei and Ranis assume that MPPL is zero during the early phases of economic development .In Nigeria today due to rural urban migration, the agricultural sector is facing an low supply of labor. Hence the marginal product of labour can’t be zero. In fact, in the rural area it is as if the supply of land is not fixed.
    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. In Nigeria, the demand for foreign goods is almost inelastic . despite the increase the exchange rate of Dollar to Naira,many Nigerians keep demanding for dollar. Put differently,this assumption does not hold for Nigeria since we are almost import dependent country.
    THEHARRIS –TODARO MODEL OF MIGRATION
    The wage in cities is higher than the one obtainable in rural areas .Given this wage differential, people rationally migrate into the cities hoping to get an urban job. But the probability of getting an urban job is not completely dependent on that rational move ,rather it depends on the the rate of employment in urban area. Consequentially, under-developed countries are faced with the problem of urban unemployment which is caused majorly by rural-urban migration. The Todaro Paradox occurs when job creation in urban area further leads to unemployment. Generally, this essay attempted to expound the assumptions, characteristics ,history and the core arguments of Harris –Todaro model of Migration, Initiate a comparison between the Harris-Todaro model with other models and expatiate the theoretical and policy implications of the model and more specifically, compare the model with the real world while drawing opinions.
    ASSUMPTIONS OF THE HARRIS –TODARO MODEL OF MIGRATION
    The following are the underlying assumptions of the Harris -Todaro migration Model ;
    (1)Urban wage is institutionally and legally fixed .
    (2)Small open economy; the economy considered in Harris -Todaro model is a small open economy.
    (3)Two sector economy; One an agricultural rural sector and the other , manufacturing urban sector economy..
    (4)The equilibrium is reached when the expected wage in urban areas is equal to the marginal product of an agricultural worker.
    (5)The Harris- Todaro model assumes the existence of perfect competition in the labour market.
    THE HARRIS-TODARO MODEL OF MIGRATION
    The Harris-Todaro Model of migration named after John R.Harris and Michael Todaro, is an economic Model developed in 1970 and used in development economics to explain the issues concerning rural –urban Migration. The Harris-Todaro model is a pioneering general equilibrium model describing the process of rural-urban labour migration [due to wage differentials] and the existence of urban unemployment in developing countries.
    Historically, the Harris- Todaro Model is traceable to the 1960s , when the government of newly independent Kenya faced a difficult situation- unemployment in Nairobi and other major cities was high and obviously rising. In other to tackle this problem, a cross sectional agreements were reached between the private-sector and public-sector which the employers agreed to increase employment in exchange for unions agreeing to hold wages at their present levels. The newly created jobs was expected to reduce unemployment. Nevertheless, urban unemployment appeared to have increased rather than decreased.
    The most significant feature of this model is that it made it possible for analysts to deal with unemployment, by including the unemployed workers who were waiting for job opportunities in the urban sector.
    Given the wage rigidity in the urban area ,flexibility of wage in rural area and the mobility of labor assumptions. It is possible for workers to move freely between sectors.. Since the rural area is agrarian, there is therefore no unemployment in the rural sector. Given this, the workers in the rural sector can always be employed, so that the probability of finding a job in the rural sector equals unity. The same doesn’t hold for the urban rate of employment. The probability of finding job in the Urban sector is less than unity because of the existence of unemployment. All this conditions in place , workers in the rural can easily migrate to the urban area in search of better wage. Some may succeed while others are pushed to the urban informal sectors .This migration causes a huge pressure on the facilities and infrastructures in urban area with attendant unemployment disequilibrium.
    The Harris-Todaro migration Model assumes wage differential as the basis of migration ,hence in equilibrium, migration between the rural and urban sectors will cease since the urban expected wage is equal to the rural-expected wage which is the same as the rural real wage.
    The first best policy would be creating new job opportunities in the urban area while simultaneously placing an institutional restriction on rural-urban migration.
    THE NIGERIAN ECONOMY AND THE HARRIS-TODARO MODEL
    Let’s attempt a contextualization of the Harris-Todaro model to the Nigerian economy this way. The Harris-Todaro model explains theoretically and practically the ravaging issue of rural-urban migration in Nigeria .Rural dwellers or laborers leave the agrarian sector for the cities majorly because of the perceived income and standard of living differentials. A large number of these migrants are insufficiently skilled in relation to being employable in the urban- manufacturing sector. Consequently, they end up working in the urban informal sectors. Again the number of people leaving for the cities’ white collar jobs are usually greater than the available jobs therein , this further creates an urban unemployment and the undue stressing of the urban facilities and infrastructures.
    One of the positive checks to this problem include creating more urban employment while simultaneously placing an institutionally restriction on migration.
    .

  81. Avatar UGWU PERPERTUA ODINAKA says:

    DISCUSSION ON LEWIS-FEI-RANIS MODEL (SURPLUS LABOUR) AND HARRIS TODARO’S MODEL OF MIGRATION
    STUDENT NAME AND REG NO.
    UGWU PERPETUA ODINAKA 2017/244848
    everlastinggift9507@gmail.com
    ECO 361
    LECTURER’S NAME:
    DR. OLISAEMEKA ACHIME
    MARCH,2021
    LEWIS-RANIS FEI MODEL (SURPLUS LABOUR)
    INTRODUCTION

    The Lewis dual economy model is widely recognised in development economics for providing profound explanatory insights into the early stages of development. Although its general framework is inspiring, its fundamental concepts and micro-mechanisms – especially, the definition of surplus labour, the wage determination mechanisms in both the traditional and modern sectors and the dynamics of labour flows between the two sectors – lack sufficient detail.

    The dual-sector model is a model in development economics. It is commonly known as the Lewis model after its inventor W. Arthur Lewis. It explains the growth of a developing economy in terms of a labour transition between two sectors, the capitalist sector and the subsistence sector.
    Initially the dual-sector model as given by W. Arthur Lewis was enumerated in his article entitled “Economic Development with Unlimited Supplies of Labor” written in 1954, the model itself was named in Lewis’s honor
    ASSUMPTIONS
    The model assumes that a developing economy has a surplus of unproductive labor in the agricultural sector.
    These workers are attracted to the growing manufacturing sector where higher wages are offered.
    It also assumes that the wages in the manufacturing sector are more or less fixed.
    Entrepreneurs in the manufacturing sector make profit because they charge a price above the fixed wage rate.
    The model assumes that these profits will be reinvested in the business in the form of fixed capital.
    An advanced manufacturing sector means an economy has moved from a traditional to an industrialized one.
    W. A. Lewis divided the economy of an underdeveloped country into 2 sectors:

    The capitalist sector
    Lewis defined this sector as “that part of the economy which uses reproducible capital and pays capitalists thereof”. The use of capital is controlled by the capitalists, who hire the services of labour. It includes manufacturing, plantations, mines etc. The capitalist sector may be private or public.

    The subsistence sector
    This sector was defined by him as “that part of the economy which is not using reproducible capital”. It can also be adjusted as the indigenous traditional sector or the “self employed sector”. The per head output is comparatively lower in this sector and this is because it is not fructified with capital.
    The “DUAL SECTOR MODEL” is a theory of development in which surplus labor from traditional agricultural sector is transferred to the modern industrial sector whose growth over time absorbs the surplus labour, promotes industrialization and stimulates sustained development.
    In the model, the subsistence agricultural sector is typically characterized by low wages, an abundance of labour, and low productivity through a labour-intensive production process. In contrast, the capitalist manufacturing sector is defined by higher wage rates as compared to the subsistence sector, higher marginal productivity, and a demand for more workers. Also, the capitalist sector is assumed to use a production process that is capital intensive, so investment and capital formation in the manufacturing sector are possible over time as capitalists’ profits are reinvested in the capital stock. Improvement in the marginal productivity of labour in the agricultural sector is assumed to be a low priority as the hypothetical developing nation’s investment is going towards the physical capital stock in the manufacturing sector.
    RELATIONSHIP BETWEEN THE TWO SECTORS
    The primary relationship between the two sectors is that when the capitalist sector expands, it extracts or draws labour from the subsistence sector. This causes the output per head of labourers who move from the subsistence sector to the capitalist sector to increase. Over time as this transition continues to take place and investment results in increases in the capital stock, the marginal productivity of workers in the manufacturing will be driven up by capital formation and driven down by additional workers entering the manufacturing sector. Eventually, the wage rates of the agricultural and manufacturing sectors will equalize as workers leave the agriculture sector for the manufacturing sector, increasing marginal productivity and wages in agriculture whilst driving down productivity and wages in manufacturing.
    The end result of this transition process is that the agricultural wage equals the manufacturing wage, the agricultural marginal product of labour equals the manufacturing marginal product of labour, and no further manufacturing sector enlargement takes place as workers no longer have a monetary incentive to transition.

    SURPLUS LABOUR AND THE GROWTH OF THE ECONOMY
    Surplus labour can be used instead of capital in the creation of new industrial investment projects, or it can be channeled into nascent industries, which are labour-intensive in their early stages. Such growth does not raise the value of the subsistence wage, because the supply of labor exceeds the demand at that wage, and rising production via improved labour techniques has the effect of lowering the capital coefficient. Although labour is assumed to be in surplus, it is mainly unskilled. This inhibits growth since technical progress necessary for growth requires skilled labor. But should there be a labor surplus and a modest capital, this bottleneck can be broken through the provision of training and education facilities. The utility of unlimited supplies of labour to growth objectives depends upon the amount of capital available at the same time. Should there be surplus labour, agriculture will derive no productive use from it, so a transfer to a non agriculture sector will be of mutual benefit. It provides jobs to the agrarian population and reduces the burden of population from land. Industry now obtains its labour. Labour must be encouraged to move to increase productivity in agriculture.
    Since the wages in the capitalist sector depend on the earnings of the subsistence sector, capitalists would like to keep down productivity/wages in the subsistence sector, so that the capitalist sector may expand at a fixed wage. In the capitalist sector labor is employed up to the point where its marginal product equals wage, since a capitalist employer would be reducing his surplus if he paid labor more than he received for what is produced. But this need not be true in subsistence agriculture as wages could be equal to average product or the level of subsistence. The total product labor is divided between the payments to labor in the form of wages, OWPM, and the capitalist surplus,. The growth of the capitalist sector and the rate of labor absorption from the subsistence sector depends on the use made of capitalist surplus. When the surplus is reinvested, the total product of labor will rise. This amount can now be reinvested and the process will be repeated and all the surplus labor would eventually be exhausted. When all the surplus labor in the subsistence sector has been attracted into the capitalist sector, wages in the subsistence sector will begin to rise, shifting the terms of trade in favor of agriculture, and causing wages in the capitalist sector to rise.
    CAPITAL ACCUMULATION
    The process of economic growth is inextricably linked to the growth of capitalist surplus, that is as long as the capitalist surplus increases, the national income also increases raising the growth of the economy. The increase in capitalist surplus is linked to the use of more and more labor which is assumed to be in surplus in case of this model. This process of capital accumulation does come to an end at some point.
    This point is where capital accumulation catches up with population so that there is no longer any surplus labor left. Lewis says that the point where capital accumulation comes to a stop can come before also that is if real wages rise so high so as to reduce capitalists’ profits to the level at which profits are all consumed and there is no net investment.
    CRITICISM
    Lewis model has attracted attention of underdeveloped countries because it brings out some basic relationships in dualistic development. However it has been criticized on the following grounds:
    Economic development takes place via the absorption of labor from the subsistence sector where opportunity costs of labor are very low. However, if there are positive opportunity costs.
    Lewis seems to have ignored the role of extractive industries in economic modernization. He explicitly excludes mining sector from his analysis.
    Absorption of surplus labor itself may end prematurely because competitors may raise wage rates and lower the share of profit.
    The Lewis model underestimates the full impact on the poor economy of a rapidly growing population.
    Lewis seems to have ignored the balanced growth between agriculture and industry. Given the linkages between agricultural growth and industrial expansion in poor countries, if a section of the profit made by the capitalists is not devoted to agricultural development, the process of industrialization would be jeopardized.
    Possible leakages from the economy seem to have been ignored by Lewis. He assumes boldly that a capitalist’s marginal propensity to save is close to one, but a certain increase in consumption always accompanies an increase in profits, so the total increment of savings will be somewhat less than increments in profit.
    The transfer of unskilled workers from agriculture to industry is regarded as almost smooth and costless, but this does not occur in practice because industry requires different types of labor.
    EMPIRICAL TESTS AND PRACTICAL APPLICATION OF THE LEWIS MODEL
    Empirical evidence does not always provide much support for the Lewis model. Theodore Schultz in an empirical study of a village in India during the influenza epidemic of 1918–19 showed that agricultural output declined, although his study does not prove whether output would have declined had a comparable proportion of the agricultural population left for other occupations in response to economic incentive. Again disguised unemployment may be present in one sector of the economy but not in others. Further, empirically it is important to know not only whether the marginal productivity is equal to zero, but also the amount of surplus labor and the effect of its withdrawal on output.
    The Lewis model was applied to the Egyptian economy by Mabro in 1967 and despite the proximity of Lewis’s assumptions to the realities of the Egyptian situation during the period of study, the model failed firstly because Lewis seriously underestimated the rate of population growth and secondly because the choice of capital intensiveness in Egyptian industries did not show much labor using bias and as such, the level of unemployment did not show any tendency to register significant decline.
    The validity of the Lewis model was again called into question when it was applied to Taiwan. It was observed that, despite the impressive rate of growth of the economy of Taiwan, unemployment did not fall appreciably and this is explained again in reference to the choice of capital intensity in industries in Taiwan. This raised the important issue whether surplus labor is a necessary condition for growth.
    This model has been employed quite successfully in Singapore. Ironically however it has not been employed in Sir Arthur Lewis’ home country of St. Lucia.
    Lewis model is not applicable in real life.

    HARRIS-TODARO’S MODEL OF MIGRATION
    INTRODUCTION
    Employment policy in developing countries like India cannot be formulated and implemented without answering a basic question, viz., how can underutilised labour be used in a develop­ment strategy? Ragnar Nurkse and W. A. Lewis asserted that large numbers of people remain engaged in work which adds nothing to national output. Nurkse saw the reallocation of a sur­plus labour to more productive uses, especially labour-intensive construction projects, as a major source of capital formation and economic growth.
    Lewis envisaged a similar reallocation process but he pictured the ‘capitalist sector’, essentially industry, as the principal employer of surplus labour. Both theories regarded the labour reallocation process as nearly costless but they worried about how to capture from the agricultural sector the food necessary to feed the transferred workers.
    While criticising the Lewis model J. R. Harris and M. P. Todaro have developed a new model of economic development which is relevant for labour surplus countries like India. It is the best known model of internal migration in the context of present-day developing countries. The model has focused on migration of labour from rural to urban areas induced by certain incentives. They have referred to two types of migration—induced migration and internal mi­gration.
    According to this model migrating workers are essentially participants in a lottery of rela­tively high-paid jobs in the towns. When new urban jobs are created the lottery becomes more attractive to potential migrants. Depending on their responsiveness to this improved opportu­nity, more than one worker are likely to migrate for each job created.
    If so, the output foregone may be that of two or more agricultural workers, not just one. If the migrants bring some of their family members to urban areas more output will be lost. The reason is that the wife and children of migrants find fewer employment opportunities in towns than in the rural areas because they do not have land in the towns on which to grow food.
    Internal Migration:
    Most of the internal labour migration which occurs in the course of economic development is from rural to urban areas. The model sets out to explain why the observed high rates of small- urban migration found in most developing countries is quite natural from an economic view point.
    In this model the expected real wage-differential between urban and rural areas is the main motivating force behind migration or the main determinant of the migration decision. The potential migrant first calculates the real income which he would get in the urban area for a job with his present effort. He next makes a personal judgement of the probability of obtain­ing such a job.
    He then compares the expected income with that which he hopes so obtain in the rural area. His migration decision is based on the difference. For example, suppose the ex­pected rural income is Rs 1000 per month, and that real income of an urban job which is commensurate with his qualification is Rs 2000.

    However, this information alone is not suffi­cient to make the migration decision. If the subjective probability of getting the urban job was 0.4, than the expected income would be Rs 800 and no migration would take place on this case expected urban wage = actual urban wage x the probability of getting a job
    800 = 0.4 x Rs 2000
    If the probability were 0.8 the expected income would be Rs 1600 (= 0.8 x Rs 2000) and the worker would migrate. (To this one may, of course, add the cost of transfer.) Thus the model brings into focus the role of economic incentive in the migration decision.
    The Basic Model:
    The Harris-Todaro model assumes that migration from rural to urban areas depends primarily on the difference in wages between the rural and urban labour markets.
    Since there is unemployment in the town (and it is as­sumed that there is no unemployment in rural areas), and every migrant cannot expect to find a job there, the model postulates that the expected urban wage with the rural wage. The expected urban wage is the actual urban wage times the probability of getting a job.
    Harris and Todaro assume that all members of the urban labour force have equal chances of obtaining the jobs available.
    Migration in any given time then depends on three factors:
    (a) The urban-rural wage gap,
    (b) The urban employment rate and
    (c) The responsiveness of potential migrants to the resulting opportunities.
    Theoretical Implication of the Model:
    There is no denying the fact that any development project can be evaluated using social cost- benefit analysis. An important part of the social cost of any input is opportunity cost, its value in its next best alternative use. Labour hired for an urban formal-sector project might well be drawn from the urban informal sector also.
    The worker who moves out of the urban informal sector may, in turn, be replaced by someone from the rural sector. In this case, the output lost is that of the worker who was formerly in the rural sector, i.e., the worker at the end of the em­ployment chain. For this reason, some analysts believe that the wage paid to casual agricultural labourers provides a good measure of the social cost of unskilled labour.
    However, this measure, although a good indicator of output foregone through labour reallo­cation, probably understates the true social cost of employing labour, which has other compo­nents that are likely to be significant. One such component is induced migration. No doubt there are both pull and push factors behind internal labour migration that occurs in the course of economic development from rural to urban areas.
    Such migration can result either from favourable economic developments in the towns or from adverse developments in the rural areas. The Harris-Todaro model integrates these two sets of forces in their analysis of the proc­ess of labour reallocation that is likely to occur during economic development. This is why the model was sort of innovation in the literature of development economics when it appeared for the first time in 1970′.
    The Policy Implications of the Model:
    The H-T model has far-reaching implications from the policy point of view. For example, if the government of the country concerned were successful in fostering industrial development in an urban area, employment would increase there.
    The effect would be to increase the subjective productivity of getting urban employment in the minds of rural inhabitants. Migration would increase and the eventual effect of the new industrial development could be that urban unem­ployment becomes higher that the level prevailing before the new development took place.
    There will be some level of urban employment which ensures equilibrium in the sense that no further migration takes place. Potential migrants may take a long-term view in arriving at a decision. They may consider that their desireness of obtaining an urban job will be higher after a waiting period of some months. Thus they will compare the present value of the sum of expected urban earnings with that of expected rural earnings.
    They may be content to accept a low wage in the urban informal sector for some time. This might be a rational decision on a long-term basis. The root of the problem is the large difference between earnings in the modern industrial sector and those in the rural areas.
    Often the former are well above the market clear­ing levels for varies reasory. The long-term solution to the problem lies in adopting policies for both urban and rural areas which reduces the real income differences between the two areas.

  82. NAME: OKOLI MARYANN AMAUCHE
    DEPARTMENT: ECONOMICS EDUCATION
    REG NO: 2017/243272
    EMAIL: maryannokoli14@gmail.com
    BLOG: https://maryannokoli.blogspot.com.ng

    HARRIS TODARO MODEL
    INTRODUCTION
    The HarrisTodaro 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

    HISTORY OF HARRIS TODARO MODEL OF MIGRATION
    In the 1960s the government of newly independent Kenya faced a difficult situation: Unemployment in Nairobi and other major cities was high and apparently rising. To cope with this problem, Tripartite Agreements were reached in which private-sector and public-sector employers agreed to increase employment in exchange for unions agreeing to hold wages at their current levels. The larger number of jobs was expected to reduce unemployment. However, in the event, urban unemployment appeared to have increased following the Tripartite Agreements rather than decreased, as far as anyone could tell.
    In light of these events, John Harris and Michael Todaro formulated the Harris-Todaro model to explain the puzzle. At the core of the Harris-Todaro model were the following features. First, real wages (adjusted for cost-of-living differences) are higher in urban formal-sector jobs than in rural traditional-sector jobs. Second, to be hired for a formal-sector job, one has to be physically present in the urban areas where the formal-sector jobs are located. Third, and as a consequence of the first two features, more workers search for formal-sector jobs than are hired, employers hire some of the job seekers but not all of them, and those not hired end up unemployed. Fourth, for equality to be maintained between the expected wage associated with searching for an urban job and the expected wage associated with taking up a lower-paying rural job, the equilibrium arising in such a setting is characterized by urban unemployment. And fifth, any temporary difference in the expected wages between one sector and another is eroded as workers migrate from the low-expected-wage labor market to the high-expected-wage labor market.

    The Harris-Todaro model produced two powerful policy results. The first concerns the policy of formal-sector job creation to employ the unemployed (who, in the Harris-Todaro model, are all in urban areas, because that is where the formal-sector jobs are assumed to be located). Such a policy, they concluded, would increase the formalsector labor force by more than the number of new jobs created, thereby raising the number of urban unemployed. Thus, the solution to urban unemployment is not to create urban employment.

    The second policy option that Harris and Todaro considered was a policy of rural development. If such a program could increase the rural traditional-sector wage, unemployment would then fall. Thus, in the Harris-Todaro model, the solution to urban unemployment is rural development. Soon after the model was published, the government of Kenya followed the Harris-Todaro precepts by putting into place an integrated program of rural development. The result was that unemployment in Kenya fell.
    Harris and Todaros fundamental contribution was building a model that fit the stylized facts of the labor market they were analyzing and that was based on sound micro foundations. The fact that the model remains part of the economists intellectual toolkit today is a tribute to its basic insight and enduring analytic power.
    The original model has been both simplified for some purposes and expanded for others by later contributors, including Stiglitz, Bell, Khan, Anand and Joshi, Bourguignon, Corden and Findlay, and others (Fields 2005). Harris and Todaro formulated general processes for determining prices of the products produced by the two sectors and also for determining a rural-sector wage that varies inversely with the number of people in the rural sector. A simplified version of the Harris-Todaro model was developed in which product prices and rural-sector wages are taken as constant. Numerous additional analytic and policy results were derived in the simplified Harris-Todaro model. At the same time, some of the assumptions of the Harris-Todaro model were judged to be too restrictive, and so the model was generalized in the years that followed to nest their specific formulation within a broader framework. The initial Harris-Todaro model has been extended to allow for on-the-job search from a rural agriculture setting, the existence of an urban informal sector, preferential hiring of the better-educated, employment fixity, duality of production conditions and earnings levels within the rural sector, capital mobility, endogenous urban wage setting, risk aversion, and a system of demand for goods, among other factors.
    As an early multisector labor-market model, the Harris-Todaro model set forth a principal alternative framework for policy analysis. It showed how employment and wage levels in one labor market reflect supply, demand, and institutional conditions not only in that labor market but also in other labor markets.
    In terms of pro-poor economic growth, the Harris-Todaro model and other multisector-labor-market models can help policy makers avoid two mistakes. One is to assume that development efforts should be channeled to the sectors where the poor are. The other is to assume that efforts should always be focused on getting the poor out of the sectors in which they now are. Careful cost-benefit analysis based on well-specified labor-market models is required to decide among such alternatives.
    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 key hypothesis of Harris and Todaro are that migrants react mainly to economic ince