6urbrurnotes_2010 - 1 Migration and Rural/Urban Transitions...

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1 Migration and Rural/Urban Transitions Much of the developing world is characterized by a few situations: Most people live in rural areas; A large share of the labor force is employed in agriculture, often subsistence agriculture. Urban areas are characterized by some large businesses with relatively high wages, and (usually many more) small, informal businesses with lower wages. Formal businesses pay taxes, bargain with unions, comply (for the most part) with labor regulations. Informal ones, and rural ones, do not. There are several questions here: What division of urban/rural labor force is best for development? What should be done about informal employment? Should it be eliminated? Or, should it be encouraged? What about formal labor regulations? To what extent should they be encour- aged/reduced? Lewis Surplus labor model In Rural Economies, labor force is well into diminishing marginal product. [draw picture] 1
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So, in principle, we could remove large fraction of the labor force from traditional settings, and transfer it to urban work, without reducing output in the rural sector. Is this true? Not 100%, anyway. If the MPL was really 0 in rural areas, and the labor force decreased suddenly do to an epidemic, you would not expect output to change. Schultz did a After the epidemic, villages were sowing 3.8% fewer acres. That is, when the labor force diminished sharply, there was an important change in production. One caveat ±disease mortality might be very di/erent from other sorts of changes in LF sizes. For example, it might be true that we could take one person o/ of each household without changing the number of plots sown, but if we eliminate some households altogether, there are big e/ects, because it takes a while to sort out inheritance of that land. Regardless of whether we believe that the MPL in rural areas is actually zero, we may be concerned that it²s much lower in rural areas than it is in urban areas. Why would we believe that MPL is low in the rural sector? Low levels of capital, complementarities between capital and labor. High population densities. Only rural? No ±unskilled urban (Lewis quote p 356) Why would this exist? - If MP urban > MP rural , why don²t people migrate³work in other sectors? 2
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- Payments in rural sector (i.e. family farms) may be average products rather than marginal. AP >> MP if MP is low (show picture). If urban wages are MPs, these may still be lower than AP rural - transaction costs (more on this later) adding very little production, but are "working." Could de±ne "disguised unemploy- ment" as MP < AP in an income-sharing situation. why? because market wage would lower to MP. If payments are AP and people aren²t migrating, what does that say about the decision problem? Do families make decisions, or individuals? If famillies are
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6urbrurnotes_2010 - 1 Migration and Rural/Urban Transitions...

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