Rural Economic Viability and Multi-functionality: Urbanization and Unemployment Cost

The present study investigates the impact of unemployment differentials between urban and rural regimes on social costs of the urban and rural migrations. It is believed that rapid urbanization caused by mass migration from rural to urban results in a huge investment burden to societies, because the public cost per capita of absorbing people in urban areas is, in general, much higher than rural areas. One of the factors that drives additional public cost is higher unemployment rate in the urban area. In this vein, Lee et al.(2002) reports that the cost of urban diseconomy with regard to unemployment caused by rural to urban migration was about 50 billino won. However, Lee et al.(2002) used the 1995 census data for their proxy for computing the unemployment cost of the period of 1995-2000. Since the unemployment cost was initiated in 1999, the computation may have a problem in reflecting a true phenomena of the social cost driven by the unemployment differentials between urban and rural areas. Along with a two-regime switching regression model that is free from migration selection bias, we construct a methodology to estimate the aggregate costs caused by urban and rural migrations. Combining the 2000 census 2% micro file with several area data, we construct two models (migration and employment opportunity) to calculate hypothetical employment opportunities in urban and rural areas. The present study found that the total cost per annum caused by urban and rural migrations is more than 72 billion Won that is 16 billion larger than that of the previous study, which implies that sustaining rural economic viability may save the money otherwise wasted. The present study concludes with suggestions for refining and developing the methodology to enhance the use of rural resources not fully utilized before.