Question

Briefly discuss the employment problem with respect to economic growth and development.

Briefly discuss the migration problem in the economic development using the Harris-Todaro Migration Model.

Answer 1

Economic growth may be one aspect of economic development but it is not the same

Economic growth: A measure of the value of output of goods and services within a time period

Economic development: A measure of the welfare of humans in a society

Problems in Employment

• Share in output and employment in different sectors
• Agriculture: 20% in GDP,57% in employ
• Industry :23% in GDP, 18% in employ
• Service: 57% in GDP, 25% in employ
• There are 458 million workers in India in 2004-05
• Out of this 423 million workers are informal/ unorganised workers (92%)
• Growth in employment more in unorganised sector
• Thus, quality of employment is a problem
• Workers in the sector do not have social security
• Government is trying to provide minimum social security to unorganised workers
• Negative impact on unemployment rate
• Companies tend to increase their employees work hours
• They upgraded their equipment and boosted their productivity, thereby reducing their need of workers.

Migration problem in the economic development

The Harris -Todaro model is based on the experiences of tropical Africa, (in the 1960-70s) facing the problems of rural-urban migration and urban unemployment

According to Harris Todaro, to solve the problem of an institutional determined wage that is higher than the equilibrium level,labour should be employed according to a shadow wage and / or at a payroll subsidy wage. They suggested that, this would help in solving the problem of rural -urban migration and urban unemployment in LDCs and developing economies, to some extent

Migration: An economic Decision:migrate on the basis of wages,and probability of unemployment

Migrants calculate ( present value of ) urban expected income (or its equivalent) and move if it exceeds average rural income

Predicts that expected incomes will be equated across rural and urban sectors when taking into account informal sector activities.

The intuition behind the model

• The urban minimum wage is set to be higher than the wage rate paid to rural labour
• This results in a wage differential between the two sectors
• Rural workers have an incentive to migrate to the urban areas despite of urban unemployment, because of the potential of higher earnings in the urban sector
• Such migration will continue as long as there is a possibility for migrants to increase their income by moving to a city
• Some migrants will have arranged employment before leaving the countryside
• Some will necessarily join the pool of urban unemployed
• This explains why there is a continuous flow of migrants observed in developing countries despite of the high urban unemployment rates

Implications of the model

1. Labour intensive industries

Setting up small scale and rural industries by direct investment or inducement.

2. Creating rural urban economic balance

Strategising integrated rural development, spread of small- scale industries and social investment in rural areas

3. Linkage between education and employment

Benefits of education should be viewed as an instrument of employment generation

4. Reducing population growth

The long run solution of employment and urbanisation problems lies in population control

5. Role of local self governments

Decentralization of authority to muncipalities and village panchayats is considered an essential step in improving the quality of public services at the local level