Rural-urban Migration and Unemployment: Theory and Policy Implications
2011 (English)In: Journal of regional science, ISSN 0022-4146, E-ISSN 1467-9787, Vol. 51, no 1, 65-82 p.Article in journal (Refereed) Published
We develop a regional model where, in the city, unemployment prevails because of too high (efficiency) wages, while, in the rural area, workers are paid at their marginal productivity. We characterize the steady-state equilibrium and show that it is unique. We then consider two policies: decreasing urban unemployment benefits and subsidizing urban employment. We find that decreasing the unemployment benefit in the city creates urban jobs and reduces rural-urban migration since new migrants have to spend some time unemployed before they can find a job in the city. On the other hand, raising employment subsidies increases urban employment but may also increase urban unemployment because it triggers more rural-urban migration. In this respect, the employment subsidy policy can backfire by raising rather than reducing urban unemployment.
Place, publisher, year, edition, pages
2011. Vol. 51, no 1, 65-82 p.
IdentifiersURN: urn:nbn:se:su:diva-53650DOI: 10.1111/j.1467-9787.2010.00670.xISI: 000287038000005OAI: oai:DiVA.org:su-53650DiVA: diva2:391084