Rural-urban Migration and Unemployment : Theory and Policy Implications

• We develop a regional model where, in the city, unemployment prevails because of too high (efficiency) wages, while, in the rural area, workers are paid at their marginal productivity. We characterize the steady-state equilibrium and show that it is unique. We then consider two policies: decreasing urban unemployment benefits and subsidizing urban employment. We find that decreasing the unemployment benefit in the city creates urban jobs and reduces rural-urban migration since new migrants have to spend some time unemployed before they can find a job in the city. On the other hand, raising employment subsidies increases urban employment but may also increase urban unemployment because it triggers more rural-urban migration. In this respect, the employment subsidy policy can backfire by raising rather than reducing urban unemployment.

Subject headings

SAMHÄLLSVETENSKAP  -- Ekonomi och näringsliv -- Nationalekonomi (hsv//swe)

SOCIAL SCIENCES  -- Economics and Business -- Economics (hsv//eng)

Publication and Content Type

ref (subject category)

art (subject category)