Rural – urban migration

Lewis theory, Rani-Fie-Lewis Theory on unlimited supplies of Labour and Todaro Model of Rural Urban Migration are famous theories on Rural_Urban Migration in Development economics

1. Rural – Urban Migration Presented by SURAMYA T.K. (HS14D022) and VIPIN V (HS14D024)

2. Introduction How to interpret growth in the d eveloping countries? Structural change and development Arthur Lewis - two sector model – Theory of rural-urban migration - ‘economic development with the unlimited supplies of labour ’ (Surplus Labour) Development – Industrial Modernization (structural transformation)

3. Process of rural-urban migration

4. The Lewis Model(1954) Economic Development –Progressive transformation of “Traditional” sector into “Modern” Sector Dual Economy Traditional: Agriculture-Older techniques which are l abour intensive Modern: Industrial - Use modern technology-Production organized in Capitalist principle

5. Surplus labour Traditional sector- supplier of labour The capital accumulation in modern sector- engine of development Large surplus of labour in traditional sector-can be removed at little or no potential cost(opportunity cost) Opportunity cost: the loss of traditional sector output as labour supply is reduced Rostenstein-Rodan (1943) and Nurkse (1953) also held this view

6. Production function of family farm Land is fixed Diminishing Returns to Scale After a point(B) additional input of labour not have effect on Q It is not limited to Agriculture( eg.Casual jobs) At point A MP L =0   Q Will family farm employ beyond this point??

7. Extensions of surplus labour concept The inability of labour to add anything to output was criticized(Viner 1957) The useful extensions of this concept are: Disguised unemployment Amount of disguised unemployment=L− L (MP=Wage) Why doesn’t market switch labour efficiently ? Ans. Zero MP is characterised by payment system Surplus labour Vs. Surplus labourers Maintaining Agri. Output is essential We remove labourers not labour Remaining labourers will adjust their labour once some are removed(Sen , 1966)

8. Economic development and the agricultural surplus Lewis explained the interplay of rural and urban sectors Later John Fei & Gustav Ranis(1961) extended it D evelopment proceeds by the transfer of labour from agriculture to industry and the surplus food grain production which sustains the labour force engaged in non-agricultural activity

9. Critique of Lewisian Model U nrealistic assumption of a smooth structural transformation of the economy Unable to explain urban unemployment and the existence of a large unban informal sector M odel couldn’t incorporate the possibility of surplus capitalist profits getting reinvested in more sophisticated labour-saving capital equipment A ssumption of the continued existence of constant real urban wages until the point where the supply of rural surplus labour is exhausted is not real L imited analytical and policy guidance for solving the third world employment and migration problems

10. Harris – Todaro Model of Rural – Urban M igration T wo-sector model of rural-urban migration Assumption: 1. migration is primarily an economic phenomenon 2. wage gap between the two sectors of the economy M igration proceeds in response to urban-rural differences in expected earnings rather than actual earnings, and the urban employment rate acting as an equilibrating force on such migration I ncorporation of the existence of urban unemployment into the model and predicts that the probability of obtaining an urban job is inversely related to the urban unemployment rate

11. schematic framework for the analysis of the migration decision

12. 3 possibilities attached to a migrant: The urban formal sector with high wage rate The urban informal sector with a fixed wage rate and abysmal conditions. The migrant will be absorbed in the event that no formal job is forthcoming Openly Unemployed with a zero wage rate the probability of getting a job in the formal sector will be: Where, L F is the no of employed people in the formal sector L I is the no of employed people in the informal sector L F + L I is the total no of potential job seekers  

13. Harris – Todaro equilibrium condition + w I = w A Where, is the formal sector wage rate w I is the informal sector wage rate w A is the agricultural wage rate “ Informal sector is an outgrowth of the fact that the formal sector has wages that are too high, so that not everyone is capable of obtaining employment in this sector. At the same time, not everyone else can stay in agriculture as well, for that would make the formal sector look too attractive and induce a great deal of migration. Informal sector is a result of this migration” ( Development Economics, Debraj Ray, Chapter 10: Rural and Urban)  

14. policy implications – Harris- Todaro Model The need to reduce imbalances in urban-rural employment opportunities Urban job creation is an insufficient solution for the urban unemployment problem Indiscriminate educational expansion will lead to further migration and unemployment Wage subsidies and Traditional scarcity factor pricing can be counterproductive Programs of Integrated Rural Development should be encouraged

15. Policy Propositions and Conclusion W age subsidies in the formal urban sector M igration restrictions Combination of both the above policies Further improvements Profit Tax on firms Forcing manufacturers to employ all available labor P roduction subsidy to agriculture Serious policy concerns political feasibility P roblems such as; the administration costs and feasibility of alternative policies Risk averse agent Role of social capital Existence of Urabn Informal sector Role of Micro Finance