Question

1. What is the main difference in prediction between the Lewis model and the Harris-Todaro model on rural to urban migration?

2. Take two countries, A and B, each has 100 mil population and in both countries 50% population is poor. Assume the poverty line is $1 per day. Below are two distributions of income in these countries. For each country, calculate the PG and APG. In which country poverty is more severe?

Income:	Between 0 and 25 cents	Between 25 cents and 50 cents	Between 50 and 75 cents	Between 75 cents and 1$
Country A, mil of people	5	5	20	20
Country B, mil of people	10	10	15	15

Answer 1

1. The Lewis model put emphasis on the question of how a traditional backward economy can be converted itself into a modern developed economy. This model compares rural agricultural sector with urban industrial sector. Lewis assumed an economy which is subsistence in nature and not market oriented. And the economy is essentially a labour surplus one. There is a continuous labour migration from traditional rural sector to modern urban sector. Wages remain low and constant for longer periods. Economic growth occurs due to rising share of profits get reinvested. Eventually, the reservoir of surplus labour gets exhausted, capital accumulation slows down and wages get determined by marginal productivity.  

The main idea of Harris-Todaro model is that the rural-urban labour migration in underdeveloped countries is the differences in average expected wages rather than actual wages. Expected wages are measured by difference in real urban income and rural agricultural income. And also on the probability of a rural migrant's getting an urban job. Wage gap between rural and urban sectors is the main reason behind migration. But there is no assurance that all migrants from rural areas be absorbed in the urban informal sector. Such people become disguised urban unemployees.