A Model of Labor Migration and Urban Unemployment in Less Developed Countries

Abstract

An economic behavioral model of rural migration is formulated which represents a realistic modification and extension of the simple wage differential approach commonly found in the literature and this probablistic approach is incorporated into a rigorous model of the determinants of labor demand and supply which when given values for the crucial parameters can be used among other things to estimate the equilibrium proportion of the labor force that is not absorbed by the modern industrial economy. Additionally the model will provide a convenient framework for analyzing the implications of alternative policies designed to alleviate unemployment by varying 1 or more of the principal parameters. A more realistic picture of labor migration in less developed nations would be one that views migration as a 2 stage phenomenon: in the 1st stage the unskilled rural worker migrates to an area and spends a certain period of time in the urban sector; and the 2nd stage is reached with the eventual attainment of a more permanent modern sector job. This 2 stage process allows one to ask some basic questions concerning the decision to migrate the proportionate size of the traditional sector and the implications of accelerated industrial growth and/or alternative rural real income differentials on labor participation in the modern economy. In the model the decision to migrate from rural to areas is functionally related to 2 principal variables: the rural real income differential and the probability of obtaining an job. To understand better the nature of the supply function to be used in the overall model of the determinants of unemployment it is helpful to state the underlying behavioral assumptions of the model of rural migration: it is assumed that the percentage change in the labor force as a result of migration during any period is governed by the differential between the discounted streams of expected and rural real income expressed as percentage of the discounted stream of expected rural real income; the planning horizon for each worker is identical; the fixed costs of migration are identical for all workers; and the discount factor is constant over the planning horizon and identical for all potential migrants. The model demonstrates the overall net impact of allowing these parameters to vary over time and/or choosing alternative values. It underlines in a simple and plausible way the interdependent effects of industrial expansion productivity growth and the differential expected real earnings capacity of versus rural activities on the size and rate of increase in labor migration and therefore ultimately on the occupational distribution of the labor force. Possibly the most significant policy implication that emerged from the model is the great difficulty of substantially reducing the size of the traditional sector without a concentrated effort at making rural life more attractive.