Handout+Chpt+11+mig-10 - make migration stop: m = 0 when W...

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EEP151/Econ171-Fall 2010 Handout for Chapter 11. Labor and migration Wage Wage W M Un-L W i Labor Labor Formal sector Informal sector Figure 1. Link between wages in the formal and informal sectors Effort Wage Un-L W * W Wage L W W * Firm: efficiency wage W * Labor market: equilibrium with unemployment Figure 2. Wage determination and labor market failure under the efficiency wage theory Todaro model of migration Structural form of the model: (1) Expected urban wage: W M = P W M The expected urban wage W M is the fixed urban wage W M times the probability P of finding a job in the urban sector. (2) Probability of finding a job in the urban sector: P = Urban employment Total urban labor force = Urban employment rate. By difference, (1 – P ) is the urban rate of unemployment. (3) Decision to migrate: m = 1 if W M W A , m = 0 if W M W A . The reduced form (solution) of the model: what is the rate of unemployment that will
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Unformatted text preview: make migration stop: m = 0 when W M = W A , i.e., when P W M = W A or when P = W A W M . Capital Flows and Remittances to Developing Countries 50 100 150 200 250 300 350 400 450 500 1988 1993 1998 2003 $ billion Remittances FDI + Private capital flows Net Official Flows Figure 2. Relative importance of remittances in international capital flows to developing countries India 22 Haiti 25 China 22 El Salvador 16 Mexico 18 Honduras 15 Philippines 12 Philippines 14 Morocco 4 DominicanRep 13 Pakistan 4 Lebanon 12 Brazil 3 Nicaragua 12 Bangladesh 3 Nepal 12 Egypt 3 Yemen 10 Source: Finance and Development (2005) Remittances in billion US$ (2004) Remittances in % of GDP (2004) Table 1. Flows of remittances into developing countries...
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Handout+Chpt+11+mig-10 - make migration stop: m = 0 when W...

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