Migration Decisions Based on Wage Comparisons The Harris-Todaro model explains migration decisions based on wage comparisons between rural and urban areas. Individuals assess their current rural wages against expected urban wages, which are calculated by multiplying the actual urban wage rate with the probability of securing employment in that sector. If expected urban income exceeds current rural earnings, migration is likely; otherwise, individuals will remain in their rural jobs.
Equilibrium Between Agricultural and Manufacturing Sectors In this model's framework, equilibrium occurs when agricultural and manufacturing wage rates equalize at a certain point where labor demand meets supply across both sectors. The red curve represents agricultural labor demand while the blue curve indicates manufacturing labor demand. At equilibrium (point E), there’s no unemployment as all workers find jobs either in agriculture or manufacturing due to balanced wage rates.
Challenges of Achieving True Equilibrium However, true equilibrium is often unattainable because fixed higher wages exist within formal sectors compared to more flexible agricultural pay structures. This leads to two official equilibria: one where expected incomes from formal employment match those from agriculture; another reflecting disparities caused by limited job availability despite high potential salaries offered by formal sectors.
Dynamics Within Urban Job Markets Urban economies consist of both formal and informal job markets—formal offering better pay but fewer positions available than needed for all seekers. Those unable to secure work formally may resort to underpaid informal roles or face unemployment altogether—a situation exacerbated by exploitation within these unregulated environments yet deemed preferable over idleness for many migrants seeking stability after relocation.