Question

8. Name five policy implications of the Harris- Todaro Model (just read theory in Chapter 7 on rural urban migration). Economic Development 12 Edition

Answer 1

Todaro model has important policy implications with regard to development strategy of wages and incomes, rural development and industrialization.

First, imbalances in urban-rural employment opportunities caused by the urban bias should be reduced . We assume that migrants respond to differentials in expected incomes, so the imbalances need to be minimised. It is also known that when there is an increase in urban wages , there is a higher migration even when unemployment is high in urban areas from rural to urban as there is less rural wage. This heavy influx of people into urban areas gives rise to socioeconomic problems in the cities and labor shortages in rural areas,. These social costs may exceed the private benefits.

Second, urban job creation is an insufficient solution for the urban unemployment problem. The traditional economic solution to urban unemployment ie the creation of more urban modern-sector jobs result in the paradoxical situation where more urban employment leads to higher levels of urban unemployment! Once again, the imbalance in expected income-earning opportunities is the crucial concept. Because migration rates are assumed to respond positively to both higher urban wages and higher urban employment opportunities, it follows that for any given positive urban-rural wage differential will widen the expected differential and induce even higher rates of rural-urban migration. So 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.

Third, indiscriminate educational expansion will lead to further migration and unemployment. The Todaro model also has important policy implications for curtailing public investment in higher education. When there is a huge migration from rural to urban Sector, employees tend to ration.

This implies that employees prefer people with higher eduction qualification for same job when they ration for jobs. this would mean higher income and more income differential.Hence it is a common scenario that people in rural areas with higher education qualification tend to migrate to urban areas.

Fourth, wage subsidies and traditional scarcity factor pricing can be counterproductive. It is noted that price distortions caused due to subsidies distort market. If eliminated could lead to more intensive modes of production but would lead to higher unemployment.

Fifth programs of integrated rural development should be encouraged. Policies that operate only on the demand side like wage subsidies etc are less effectivei n the long run in alleviating the unemployment problem .

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