The Lewis model (and, generally, the dual-economy paradigm) implies a rural-urban migration (and full employment). At the same time, data (and casual observation) shows a large unemployed urban population in LDCs. In fact, urban populations often do much worse than the rural residents. Why, then, do people move?
One of the easiest assumptions to make is to explain it away as an attraction of city lights. But this is not very satisfactory.
[...] Migration continues until gambling remains sufficiently attractive. 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. Therefore, migration from rural areas to urban areas will increase if: Urban wages increase in the urban sector increasing the expected urban income. Agricultural productivity decreases, lowering marginal productivity and wages in the agricultural sector (wr or decreasing the expected rural income. [...]
[...] That is a crucial assumption: urban formal wages a fixed and higher than ag wage for the same type of worker. Why? Several reasons possible: Urban formal jobs as government showcase (Gvt trying to show the world that they are well off) Efficiency wages (we want to have the highest productivity worker, so paying more might achieve this) Union bargaining power (pushing up wages in the formal sector) Labour market regulation Regardless, we assume this to be the case, that manufacturing wages are higher than the efficiency equilibrium wage. [...]
[...] Pressure on (lowering) wages: allowing entrants to the labour market makes the poor already here worse off. This is probably true: an influx of foreign labour probably drives down wages, in certain sectors, in the short term. Labour mobility is not necessary to improve the plight of the world's worse off Development is about nation-states, not nationals. Development is usually thought of in terms of nations, not of people. We talk about raising living standards in Liberia, not raising the living standards of Liberians. [...]
[...] Agricultural output is determined by production function with diminishing marginal returns Output is sold on a world market with price = 1 Perfect competition is assumed in the labour market: Horizontal axis: total labour supply (determines how many people work in agriculture and how many people work in manufacturing). Vertical axis: agricultural and manufacturing wage rates. The AA curve: the demand for agricultural labour, set against the ag wage rate. The MM curve: the demand for manufacturing labour For an efficient equilibrium at rural wage = urban wage But what sets this model in motion is an urban labour market friction, which leads to a higher average fixed wage in manufacturing. [...]
[...] International migration Discussion based on Pritchett, L. Let Their People Come (Centre for Global Development, 2006). `Whether anyone likes it or not, migration will be a key issue of the 21st century. Pritchett's book highlights the difficult political and ethical issues that the movement of people across national borders presents to the current system. His discussion of ways to break the deadlock is a provocative contribution in an area where provocation is needed.' In an increasingly liberalized and integrated global economy, with more open capital and goods and services markets, the highly restricted and heavily regulated markets for global labour are an oddity. [...]
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