Harris-Todaro Model

The Harris-Todaro Model is an economic model used in development economics or welfare economics to explain some of the issues in rural-urban migration.

Essentially, it asserts that an equilibrium will be reached when the expected wage in urban areas, adjusted for the unemployment rate, is equal to the marginal production of an agricultural worker. So migration from rural areas to urban areas will increase if any of the following three things happen:

• an increase in urban wages
• a reduction in urban unemployment
• a reduction in agricultural productivity

The rural to urban migration causes overcrowding in cities, with many people ending up in unproductive employment in the informal sector.

The model assumes potential migrants are risk_neutral, this is false, poor migrants will likely be risk averse.

Reference

Harris J. and M. Todaro (1970). Migration, Unemployment & Development: A Two-Sector Analysis. American Economic Review, March 1970; 60(1):126-42.