Harris–Todaro model

Introduction:
 The Harris–Todaro model is an economic model.
 It was developed in 1970.
 It is used in development economics and welfare economics.
 It is used to explain some of the issues concerning rural-urban migration.
 It is named according to the names of John R. Harris and Michael Todaro.
Explanations:
 In the model, an equilibrium is reached when the expected wage in urban areas (actual
wage adjusted for the unemployment rate), is equal to the marginal product of an
agricultural worker.
 In equilibrium, the rural to urban migration rate will be zero since the expected rural
income equals the expected urban income.
 However, in this equilibrium there will be positive unemployment in the urban sector.
 The model explains internal migration in China as the regional income gap has been
proved to be a primary drive of rural-urban migration, while urban unemployment is
local governments' main concern in many cities.
Assumptions:
 The main assumptions of the model is that the migration decision is based
on expected income differentials between rural and urban areas rather than just
wage differentials.
 Rural-urban migration in a context of high urban unemployment can be economically
rational if expected urban income exceeds expected rural income.
 Unemployment is non-existent in the rural agricultural sector.
 Rural agricultural production and the subsequent labour market is perfectly
competitive.
 The agricultural rural wage is equal to agricultural marginal productivity.

Formalism:
The formal statement of the equilibrium condition of the Harris–Todaro model is as follows:

 Let wr be the wage rate (marginal productivity of labor) in the rural agricultural sector.
 Let le be the total number of jobs available in the urban sector, which should be equal to
the number of employed urban workers.
 Let lus be the total number of job seekers, employed and unemployed, in the urban sector.
 Let wu be the wage rate in the urban sector, which could possibly be set by government
with a minimum wage law.
Conclusions:
Therefore, migration from rural areas to urban areas will increase if:

 Urban wages (wu) increase in the urban sector (le), increasing the expected urban
income.
 Agricultural productivity decreases, lowering marginal productivity and wages in
the agricultural sector (wr), decreasing the expected rural income.
However, even though this migration creates unemployment and induces informal sector
growth, this behavior is economically rational and utility-maximizing in the context of the
Harris–Todaro model.