Harris–todaro model

What Is Harris–Todaro Model?

The Harris–Todaro model is an influential economic theory within development economics that explains rural-to-urban migration patterns in developing countries. Developed in 1970, the Harris–Todaro model posits that individuals make migration decisions based on expected income differentials between urban and rural areas, rather than solely on existing wage differentials. This means that a rational migrant might choose to move to an urban center even if there is significant urban unemployment, provided the anticipated earnings, adjusted for the probability of securing a formal sector job, are higher than their current rural income. This framework is crucial for understanding persistent urban unemployment in the context of ongoing rural-urban population shifts.

History and Origin

The Harris–Todaro model was formulated by economists John R. Harris and Michael P. Todaro in their seminal 1970 paper, "Migration, Unemployment and Development: A Two-Sector Analysis". The model emerged from observations in newly independent Kenya in the 1960s, where urban unemployment remained high and appeared to increase, even after efforts to create more formal sector jobs through "Tripartite Agreements" between employers and unions. This c³⁹, ⁴⁰ounterintuitive outcome prompted Harris and Todaro to propose a model that accounted for the decision-making process of rural migrants.

Their fundamental insight was that individuals contemplating migration consider the likelihood of finding a high-paying job in the urban formal sector versus the certainty of lower earnings in the rural agricultural sector. The model provided a micro-foundation for understanding why labor migration could continue despite visible urban joblessness, leading to its lasting relevance in labor market analysis for developing nations.

Ke³⁸y Takeaways

• The Harris–Todaro model explains rural-urban migration based on rational economic choices and expected income, not just actual wage differences.
• Migration can occur even when urban unemployment is high, as long as the expected urban wage exceeds the rural wage.
• The model often predicts an equilibrium where there is persistent urban unemployment.
• A key policy implication is that creating more urban jobs might paradoxically increase urban unemployment by encouraging more rural-urban migration.
• Promoting rural development and increasing agricultural productivity can be more effective in stemming migration and reducing urban unemployment.

Formula and Calculation

The core of the Harris–Todaro model lies in its expected income equality condition. In equilibrium, the expected urban wage must equal the rural wage. The formula for this equilibrium condition is typically expressed as:

$W_A = \frac{L_F}{N_U} W_U$

Where:

• (W_A) = Wage rate (or marginal product of labor) in the rural agricultural sector.
• (W_U) = Wage rate in the urban formal sector. This is often assumed to be exogenously fixed (e.g., by minimum wage laws or union negotiations) and higher than (W_A).
• (L_F) = Total number of jobs available in the urban formal sector (i.e., employed individuals in the urban formal sector).
• (N_U) = Total number of job seekers in the urban sector (including both employed and unemployed individuals who have migrated or are seeking urban employment).

The ratio (\frac{L_F}{N_U}) represents the probability of a migrant finding a formal sector job in the urban area. When this ³⁶, ³⁷condition holds, there is no further incentive for net migration, even if it means some individuals remain unemployed in the city.

Interpreting the Harris–Todaro Model

Interpreting the Harris–Todaro model means understanding that migration is not simply a direct response to a higher urban wage, but rather a calculation of risk and reward. Individuals in rural areas, often facing lower, but certain, incomes, weigh this against the prospect of a much higher urban wage, discounted by the probability of actually securing such a job.

For instance,³⁴, ³⁵ if the urban formal sector wage is very high, it can attract a large number of migrants, even if the probability of getting a job is low. The pool of urban job seekers ((N_U)) expands, driving down the probability term ((\frac{L_F}{N_U})). An equilibrium is reached when the expected value of an urban job (its high wage multiplied by the low probability of obtaining it) equals the rural wage. This explains why observers might see crowded urban centers with high unemployment, yet people continue to move there—their individual rational calculations justify the move based on the perceived long-term benefits or a "job lottery".

Hypothetical³², ³³ Example

Consider a developing country with a stark economic divide. In the rural sector, a farmer earns a steady income of $100 per month ((W_A = 100)). In the nearest city, formal sector factory jobs pay $500 per month ((W_U = 500)). However, due to limited job creation and a large influx of migrants, the probability of finding a factory job is only 20% (i.e., 100,000 formal jobs available for 500,000 job seekers, so (\frac{L_F}{N_U} = 0.20)).

A rural worker, analyzing their options through the Harris–Todaro lens, would calculate their expected urban income:
Expected Urban Income = Probability of Employment × Urban Wage
Expected Urban Income = (0.20 \times $500 = $100)

In this scenario, the expected urban income of $100 is equal to the current rural income of $100. According to the Harris–Todaro model, there would be no net incentive for further migration from rural to urban areas, as the expected gains are zero. This illustrates how equilibrium can be sustained with high urban unemployment, as the low probability of employment offsets the high urban wage. If the expected urban income were, for example, $120, migration would continue until the probability of finding a job decreases enough to bring the expected urban income back down to $100, or until the rural wage adjusts upwards.

Practical Applications

The Harris–Todaro model has significant practical applications for policymakers in developing nations, particularly concerning strategies for economic growth and poverty reduction. Instead of focusing solely on creating urban jobs, which can exacerbate urban unemployment by attracting more migrants, the model suggests that investments in rural development are crucial.

Policies derived from ²⁹, ³⁰, ³¹the Harris–Todaro model often include:

• Rural Development Programs: Enhancing agricultural productivity, investing in rural infrastructure, and fostering non-farm rural employment opportunities can raise rural incomes, thereby reducing the incentive for rural-urban migration.
• Appropriate Wage Po²⁷, ²⁸licies: Policies that prevent urban formal sector wages from being excessively high relative to rural wages can help mitigate the magnet effect that draws migrants to cities where jobs are scarce.
• Education and Human Capital Development: While indiscriminate expansion of urban education can worsen unemployment if job opportunities don't keep pace, targeted skill development for rural areas can enhance local earning potential and improve rural livelihoods. For instance, the World Bank has published research discussing critiques and extensions of the Harris–Todaro model, including how policy implications might change with various model modifications.

Limitations and Critici²⁶sms

Despite its foundational role in welfare economics and development, the Harris–Todaro model faces several limitations and criticisms:

• Assumption of Risk-Neutrality: The model assumes that migrants are risk-neutral, meaning they are indifferent between a certain rural income and an uncertain expected urban income of the same magnitude. In reality, many migrants, especially the poor, may be risk-averse, which could lead to less migration than predicted by the model.
• Non-Economic Factors:²⁴, ²⁵ The model primarily focuses on economic incentives, neglecting important social, cultural, and humanitarian factors that influence migration decisions, such as family ties, access to services, or escaping conflict.
• Oversimplified Rural Se²², ²³ctor: The assumption of zero marginal productivity or perfect competition in the rural agricultural sector is often considered unrealistic in many developing economies.
• Absence of Return Migra²⁰, ²¹tion: The basic Harris–Todaro model does not typically account for return migration to rural areas if urban employment is not found or if conditions worsen, which can be a significant real-world phenomenon.
• Informal Sector Treatment: While later extensions incorporate an urban informal sector, the original model often simplifies the urban labor market into only employed or unemployed formal sector workers. Some research suggests that imp¹⁷, ¹⁸, ¹⁹rovements to the model could involve a more nuanced treatment of the informal credit market and its impact on urban unemployment.
• Barriers to Migration: ¹⁶The model often assumes costless migration, which may not hold true, particularly for international migration where significant legal, financial, and social barriers exist.

Harris–Todaro Model vs. Lew¹⁴, ¹⁵is Model

The Harris–Todaro model and the Lewis model are both influential in development economics, particularly concerning labor migration from rural to urban areas, but they differ significantly in their assumptions and predictions.

While the Lewis model, developed by Arthur Lewis, conceptualizes a "dual economy" where surplus labor from a traditional agricultural sector is absorbed into a modern industrial sector at a constant subsistence wage, it typically assumes that the modern sector can absorb all migrants, eventually eliminating rural surplus labor. The Harris–Todaro model, on the other¹¹, ¹², ¹³ hand, specifically addresses the paradox of growing urban unemployment in the face of continuing migration, arguing that individuals rationally migrate despite unemployment if the chance of a high-paying urban job makes the expected return worthwhile.

FAQs

Why do people still migra⁹, ¹⁰te to cities if there is high urban unemployment?

People continue to migrate to cities even with high urban unemployment because the Harris–Todaro model suggests their decision is based on expected income. If the high wages available in the urban formal sector, multiplied by the probability of actually securing one of these jobs, still exceed the lower, more certain income in the rural areas, then migration remains a rational economic choice for individuals.

What is the "Todaro Paradox"?

The "⁷, ⁸Todaro Paradox" refers to the counterintuitive implication of the Harris–Todaro model that creating more jobs in the urban formal sector can actually increase urban unemployment. This happens because the increased availability of jobs raises the expected urban income, which then draws an even larger number of new migrants from rural areas, outstripping the number of new jobs created.

How can urban unemployment be reduced ⁵, ⁶according to the Harris–Todaro model?

According to the Harris–Todaro model, reducing urban unemployment is best achieved not by creating more urban jobs, but by implementing policies that improve economic conditions and job opportunities in rural areas. By raising rural incomes and living standards, the incentive for rural-urban migration decreases, which in turn helps to alleviate the pressure on urban labor markets and reduce the pool of unemployed migrants.

Does the Harris–Todaro model apply to deve³, ⁴loped countries?

While originally developed to explain migration patterns in developing countries, the underlying mechanism of the Harris–Todaro model—where migration decisions are based on expected income and the probability of employment—can be conceptually applied to understand certain labor market dynamics in developed countries as well, especially concerning internal migration or specific sectors.

What are the main sectors in the Harris–Todaro mod²el?

The basic Harris–Todaro model typically divides the economy into two primary sectors: the rural or agricultural sector, characterized by lower but generally full employment and flexible wages, and the urban sector, which is further divided into a formal (modern) sector with higher, institutionally fixed wages and an informal sector or a pool of unemployed individuals.¹