Chapter 7.5 & 7.6 Report

Good day everyone!
ECONOMIC DEVELOPMENT
Chapter 7.5 & 7.6
Julia Marie T. Garet
Ma-mamasko po ako dito sa
report.
CHAPTER 7.5:
MIGRATION AND DEVELOPMENT
Keypoints:
• Rural-urban Migration
• Rural-urban
• Migration
• Internal Migration
Rural-urban migration has
been dramatic, and urban
development plays an important
role in economic development.
Rates of rural-urban migration in developing
countries have exceeded rates of urban job
creation and thus surpassed greatly the
absorption capacity of both industry and
urban social services.
Migration worsens rural-urban structural
imbalances in two direct ways:
• First, on the supply side, internal migration

disproportionately increases the growth rate of
urban job seekers relative to urban population
growth, which itself is at historically unprecedented
levels because of the high proportion of well-
educated young people in the migrant system.
• Second, on the demand side, urban job
creation is generally more difficult and
costly to accomplish than rural job creation
because of the need for substantial
complementary resource inputs for most
jobs in the industrial sector.
But the impact of migration on the development process is
much more pervasive than its exacerbation of urban
unemployment and underemployment. In fact, the significance
of the migration phenomenon in most developing countries is not
necessarily in the process itself or even in its impact on the
sectoral allocation of human resources. Rather, its significance
lies in its implications for economic growth in general and for the
character of that growth, eparticularly its distributional
manifestations.
We must therefore recognize that migration in excess of job opportunities is
both a symptom of and a contributor to underdevelopment.
Understanding the causes, determinants, and consequences of internal rural-
urban labor migration is thus central to understanding the nature and character of
the development process and to formulating policies to influence this process in
socially desirable ways. A simple yet crucial step in underlining the centrality of the
migration phenomenon is to recognize that any economic and social policy that
affects rural and urban real incomes will directly or indirectly influence the
migration process. This process will in turn itself tend to alter the pattern of
sectoral and geographic economic activity, income distribution, and even
population growth.
In addition, we need to understand better not
only why people move and what factors are most
important in their decision-making process but also
what the consequences of migration are for rural
and urban economic and social development. If all
development policies affect migration and are
affected by it:
• Which are the most significant, and why?
• What are the policy options and trade-offs among
different and sometimes competing objectives (e.g.,
curtailing internal migration and expanding
educational opportunities in rural areas)?
Part of our task in the following sections will be to seek
answers to these and other questions relating to migration,
unemployment, and development.
Migration patterns are complex. The most
important type of migration from the standpoint of
long-run development is rural-urban migration, but
a great deal of rural-rural, urban-urban, and even
urban-rural migration also takes place.
The overall picture is one of a remarkable amount of
“churning,” or continuous movements of people within
developing countries, especially over short distances.
These movements contradict the popular image of
stasis in traditional societies. The composition of
internal migration for several countries is shown in
Figure 7.10.
In addition to wage differentials, age, and education,
migration is also explained partly by relocation upon
remarrying; prior emigration of family members;
distance and costs of relocation; occurrence of famine,
disease, violence, and other disasters; and relative
standing in the origin community, with those lower on
the social order more likely to migrate.
Migration can also be a form of portfolio
diversification for families who seek to settle
some members in areas where they may not
be affected by economic shocks in the same
way as if they had stayed at home.
CHAPTER 7.6:
Toward an Economic
Theory of Rural-
Urban Migration
Keypoints:
• Todaro migration model

• Harris-Todaro model
• A Verbal Description of the Todaro Model
• Present Value
• A Diagrammatic Presentation
• Labor Turnover
• Efficiency Wage
• Todaro Migration Model Four Basic Characteristics
• Five Policy Implications
Stretching muna tayo
Todaro migration model
-A theory that explains rural-urban

migration as an economically rational process
despite high urban unemployment. Migrants
calculate (present value of) urban expected
income (or its equivalent) and move if this
exceeds average rural income.
Harris-Todaro model
-An equilibrium version of the Todaro

migration model that predicts that expected
incomes will be equated across rural and urban
sectors when taking into account informalsector
activities and outright unemployment.
A Verbal Description of the Todaro Model
The fundamental premise is that migrants consider the

various labor market opportunities available to them in
the rural and urban sectors and choose the one that
maximizes their expected gains from migration. A
schematic framework showing how the varying factors
affecting the migration decision interact is given in Figure
7.11.
Present value
- The discounted value at the present time of a

sum of money to be received in the future.
- As long as the present value of the net stream of
expected urban income over the migrant’s planning
horizon exceeds that of the expected rural income,
the decision to migrate is justifiable. This, in
essence, is the process depicted in Figure 7.11.
A Diagrammatic Presentation
On his process of achieving an unemployment equilibrium between urban expected

wages and average rural income rather than an equalized rural-urban wage as in the
traditional neoclassical free-market model can also be explained by a diagrammatic
portrayal of the basic Harris-Todaro model. This is done in Figure 7.12. Assume only
two sectors, rural agriculture and urban manufacturing. The demand for labor (the
marginal product of labor curve) in agriculture is given by the negatively sloped line
AA’ . Labor demand in manufacturing is given by given by line MM’ (reading from right
to left). The total labor force is OoOM. In a neoclassical, flexible-wage, full-
employment market economy, the equilibrium wage would be established at W*A =
W*M , with OaLa workers in agriculture and OmL*m , with OaLa* workers employed in
urban manufacturing. All available workers are therefore employed.
Ratio of Employment
Labor turnover
-Worker separations from employers, a concept used in

theory that the urban-rural wage gap is partly explained
by the fact that urban modern-sector employers pay
higher wages to reduce labor turnover rates and retain
trained and skilled workers.
Efficiency wage
- The notion that modern-sector urban

employers pay a higher wage than the equilibrium
wage rate in order to attract and retain a higher-
quality workforce or to obtain higher productivity
on the job.
Todaro migration model has four basic
characteristics:
1. Migration is stimulated primarily by rational economic considerations of

relative benefits and costs, mostly financial but also psychological.
2. The decision to migrate depends on expected rather than actual
urbanrural real-wage differentials where the expected differential is
determined by the interaction of two variables, the actual urban-rural
wage differential and the probability of successfully obtaining
employment in the urban sector.
3. The probability of obtaining an urban job is directly related to the
urban employment rate and thus inversely related to the urban
unemployment rate.
4. Migration rates in excess of urban job opportunity growth
rates are not only possible but also rational and even likely
in the face of wide urbanrural expected income
differentials. High rates of urban unemployment are
therefore inevitable outcomes of the serious imbalance of
economic opportunities between urban and rural areas in
most underdeveloped countries.
Five Policy Implications
• First, imbalances in urban-rural employment opportunities caused by the
urban bias, particularly first-city bias, of development strategies must be
reduced.
• Second, urban job creation is an insufficient solution for the urban
unemployment problem.
• Third, indiscriminate educational expansion will lead to further migration
and unemployment.
• Fourth, wage subsidies and traditional scarcity factor pricing can be
counterproductive.
• Finally, programs of integrated rural development should be encouraged.
Thank you and God
Bless!!

Chapter 7.5 & 7.6 Report

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Good day everyone!

• First, on the supply side, internal migration

• Todaro migration model

-A theory that explains rural-urban

-An equilibrium version of the Todaro

The fundamental premise is that migrants consider the

- The discounted value at the present time of a

On his process of achieving an unemployment equilibrium between urban expected

-Worker separations from employers, a concept used in

- The notion that modern-sector urban

1. Migration is stimulated primarily by rational economic considerations of

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