RURAL – URBAN MIGRATION

Presented by

SURAMYA T.K. (HS14D022)

and

VIPIN V (HS14D024)

INTRODUCTION

How to interpret growth in the developingcountries?

Structural change and development

Arthur Lewis - two sector model – Theory of rural-urban migration - ‘economic development with theunlimited supplies of labour’ (Surplus Labour)

Development – Industrial Modernization (structuraltransformation)

PROCESS OF RURAL-URBAN MIGRATION

Surplus Labour Transfer from

Rural to Urban

Increase in the Urban

Employment

Increased Capital Accumulation

Increased Growth Rate of the

Modern Sector

Increase in the Rate of New Job

Creation

THE LEWIS MODEL(1954)

Economic Development –Progressive

transformation of “Traditional” sector into “Modern”

Sector

Dual Economy

Traditional: Agriculture-Older techniques which

are labour intensive

Modern: Industrial - Use modern technology-

Production organized in Capitalist principle

SURPLUS LABOUR

Traditional sector- supplier of labour

The capital accumulation in modern sector- engine

of development

Large surplus of labour in traditional sector-can be

removed at little or no potential cost(opportunity

cost)

Opportunity cost: the loss of traditional sector

output as labour supply is reduced

Rostenstein-Rodan(1943) and Nurkse (1953) also

held this view

PRODUCTION FUNCTION OF FAMILY FARM

o Land is fixed

o Diminishing Returns to

Scale

o After a point(B)

additional input of

labour not have effect

on Q

o It is not limited to

Agriculture(eg.Casual

jobs)

o At point A MPL=0

o𝐴𝑄

𝐴= 𝜔

Q

Will family

farm employ

beyond this

point??

EXTENSIONS OF SURPLUS LABOUR CONCEPT

The inability of labour to add anything to output was criticized(Viner 1957)

The useful extensions of this concept are:

a) Disguised unemployment

o Amount of disguised unemployment=L−L(MP=Wage)

o Why doesn’t market switch labour efficiently?

Ans. Zero MP is characterised by payment system

b) Surplus labour Vs. Surplus labourers

o Maintaining Agri. Output is essential

o We remove labourers not labour

o Remaining labourers will adjust their labour once some are removed(Sen,1966)

ECONOMIC DEVELOPMENT AND

THE AGRICULTURAL SURPLUS

Lewis explained the interplay of rural and urban

sectors

Later John Fei & Gustav Ranis(1961) extended it

Development proceeds by the transfer of labour

from agriculture to industry and the surplus food

grain production which sustains the labour force

engaged in non-agricultural activity

CRITIQUE OF LEWISIAN MODEL

Unrealistic assumption of a smooth structural

transformation of the economy

Unable to explain urban unemployment and the

existence of a large unban informal sector

Model couldn’t incorporate the possibility of surplus

capitalist profits getting reinvested in more sophisticated

labour-saving capital equipment

Assumption of the continued existence of constant real

urban wages until the point where the supply of rural

surplus labour is exhausted is not real

Limited analytical and policy guidance for solving the

third world employment and migration problems

HARRIS – TODARO MODEL OF RURAL –

URBAN MIGRATION

Two-sector model of rural-urban migration

Assumption:

1. migration is primarily an economic phenomenon

2. wage gap between the two sectors of the economy

Migration proceeds in response to urban-rural differences

in expected earnings rather than actual earnings, and the

urban employment rate acting as an equilibrating force

on such migration

Incorporation of the existence of urban unemployment

into the model and predicts that the probability of

obtaining an urban job is inversely related to the urban

unemployment rate

SCHEMATIC FRAMEWORK FOR THE ANALYSIS OF

THE MIGRATION DECISION

3 possibilities attached to a migrant:

The urban formal sector with high wage rate

The urban informal sector with a fixed wage rate and

abysmal conditions. The migrant will be absorbed in the

event that no formal job is forthcoming

Openly Unemployed with a zero wage rate

the probability of getting a job in the formal sector will be:𝐿𝐹

𝐿𝐹 + 𝐿𝐼Where,

LF is the no of employed people in the formal sector

LI is the no of employed people in the informal sector

LF + LI is the total no of potential job seekers

HARRIS – TODARO EQUILIBRIUM CONDITION

𝐿𝐹

𝐿𝐹+𝐿𝐼 𝑤 +

𝐿𝐼

𝐿𝐹+𝐿𝐼wI = wA

Where,

𝑤 is the formal sector wage rate

wI is the informal sector wage rate

wA is the agricultural wage rate

“Informal sector is an outgrowth of the fact that theformal sector has wages that are too high, so that noteveryone is capable of obtaining employment in thissector. At the same time, not everyone else can stay inagriculture as well, for that would make the formal sectorlook too attractive and induce a great deal of migration.Informal sector is a result of this migration”

(Development Economics, Debraj Ray, Chapter 10: Rural and Urban)

POLICY IMPLICATIONS – HARRIS-TODARO MODEL

The need to reduce imbalances in urban-ruralemployment opportunities

Urban job creation is an insufficient solution for theurban unemployment problem

Indiscriminate educational expansion will lead to furthermigration and unemployment

Wage subsidies and Traditional scarcity factor pricingcan be counterproductive

Programs of Integrated Rural Development should beencouraged

POLICY PROPOSITIONS AND CONCLUSION

Wage subsidies in the formal urban sector

Migration restrictions

Combination of both the above policies

Further improvements

Profit Tax on firms

Forcing manufacturers to employ all available labor

Production subsidy to agriculture

Serious policy concerns

political feasibility

Problems such as; the administration costs and feasibility of alternative policies

Risk averse agent

Role of social capital

Existence of Urabn Informal sector

Role of Micro Finance