1. Chapter 9 Employment, Migration and Urbanization
CHAPTER 9 ©E.Wayne Nafziger Development Economics

2. Employment, Migration & Urbanization
Production Function
Uniqueness of Employment Problems in LDCs
Unemployment, Underemployment & Statistics
Disguised Unemployment
Rural-urban Migration
Harris-Todaro Model
CHAPTER 9 ©E.Wayne Nafziger Development Economics

3. Employment, Migration & Urbanization
Western Approaches to Unemployment
Causes of Unemployment in LDCs
Policies for Reducing Unemployment
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4. The Production Function
Y = F(L, K, N, E, T)
means that output (or national product) (Y) during a given time period depends on the input flows of labor (L), capital (K), natural resources (N), and entrepreneurship (E); and prevailing technology (T).
CHAPTER 9 ©E.Wayne Nafziger Development Economics

5. How unemployment in LDCs is different
Openly unemployed usually 15-24, educated, and urban (at least in low-income countries, especially in SSA and South Asia).
Women higher unemployment rate.
Less likely from poorest 20% of population.
Potential source of unrest.
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6. Unemployment/labor force
3.7% East & South Asia.
8.2% China.
9.2% Latin America.
5.9% Middle East.
14.2% Africa.
11.1% Developing Europe & Central Asia.
6.2% high-income countries (World Bank 2003h: 52-53, ILO 2000).
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7. CHAPTER 9 ©E.Wayne Nafziger Development Economics
Labor absorption
Assume labor force growing at sub-Saharan Africas rate 2.7% yearly,
1/3 of labor force employed in non-agriculture.
1/3 X what =
1/3 X 0.081=0.027.
CHAPTER 9 ©E.Wayne Nafziger Development Economics

8. CHAPTER 9 ©E.Wayne Nafziger Development Economics
Labor absorption
Assume labor force growing at sub-Saharan Africa’s rate 2.7% yearly,
1/3 of labor force employed in non-agriculture.
1/3 X what =
1/3 X 0.081=0.027.
Does non-agriculture labor demand grow by 8.1% yearly?
Not likely (see table 9.2, p. 314).
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9. CHAPTER 9 ©E.Wayne Nafziger Development Economics

10. CHAPTER 9 ©E.Wayne Nafziger Development Economics

11. Disguised unemployment
Zero marginal revenue productivity of LDC labor.
Theoretical basis – limited technical substitutability of factors.
Marginal worker or marginal hour (?).
CHAPTER 9 ©E.Wayne Nafziger Development Economics

12. Rural-urban migration
LDC labor force growing 1.6% yearly.
Urban labor force & population growing 2.4% yearly.
LDC urban population/total population: 27% 1975, 35% 1992, 40% 2003.
75% Latin America, 38% Asia, 33% Africa, 75% DCs, 47% world.
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13. CHAPTER 9 ©E.Wayne Nafziger Development Economics

14. LDC rural-urban migration
TWO MODELS
1. Lewis model.
2. Harris-Todaro model.
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15. LDC rural-urban migration
Harris-Todaro model
Migration depends on expected earnings.
Wages X probability of employment..
Rs 6000 X 0.20 = Rs 1200 < Rs 3000
No migration
Rs 6000 X 0.60 = Rs 3600 > Rs 3000
Labor will migrate
CHAPTER 9 ©E.Wayne Nafziger Development Economics

16. Critique of Harris-Todaro
ILO indicates urban/rural income is 2 in Asia & Latin America & 4-5 in Africa.
At Asian ratios, urban unemployment should be 50% to equate expected income.
Urban informal sector – petty traders, artisans, & self-employed – absorbs many.
Low startup costs, no barriers to entry, hire labor below minimum wage.
Informal sector 34% Mexico City, 45% Bogota, 43% Kolkata, 50% Lagos.
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17. Effect of other amenities
Housing, shopping, transport, health care, schools.
Overurbanization in many LDCs.
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18. Keynesian approach not so applicable to LDCs
What is the Keynesian approach?
Why is the Keynesian approach NOT so applicable to LDCs?
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19. Why is the Keynesian approach not so applicable to LDCs?
Supply-side shortages (managers, capital, foreign exchange, materials) limit output & employment expansion.
Increased urban demand spurs more entrants into urban labor force.
Government spending/GNP lower than in DCs.
Employment growth slower than output growth because of capital-intensive techniques.
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20. Causes of LDC unemployment
Unsuitability of technology – rigid factor requirements.
Factor price distortions
High modern-sector wages.
Low capital costs.
Unemployment among educated.
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21. Policies to reduce unemployment
Family planning programs to reduce population growth.
Increased rural economic development.
Reducing urban bias.
Intermediate technology and other modifications to inappropriate technology.
Reducing factor price distortions.
Reform the educational system.
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22. The best antidote for unemployment
Fast growth (such as in South Korea & Taiwan) is generally the best antidote for unemployment.
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