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Specific and mobile capital, migration and unemployment in a Harris-Todaro model

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  • Kul Bhatia

Abstract

Specific- and mobile-capital versions of the Harris-Todaro model are compared in a simple algebraic formulation. The former focuses on wage elasticity of demand in the minimum-wage ( M ) sector ( m M ), whereas the latter also considers elasticities of substitution ( † s). By relating m M and † M , similarities between the conclusions of the two models can be clearly obse M rved and M many of them can be restated as exogenous conditions on the substitution elasticities. A single † , for which econometric estimates are readily available, can drive some key results. Elasticity of substitution in the non-minimum-wage sector, which is rarely discussed in the literature because of its emphasis on the minimum-wage sector, plays an important part. Among the new results, in the mobile-capital formulation, 'large' values of this elasticity ( † A , for which precise, quantifiable expressions are derived) are sufficient to cause outmigration from the M -sector when the minimum wage is increased, irrespective of † M and m M . Numerical examples from a computable general equilibrium model for Mexico illustrate, and in some cases flesh out, some analytical propositions for both versions of the HT model in a small open economy.

Suggested Citation

  • Kul Bhatia, 2001. "Specific and mobile capital, migration and unemployment in a Harris-Todaro model," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 11(2), pages 207-222.
    • Handle: RePEc:taf:jitecd:v:11:y:2001:i:2:p:207-222
    DOI: 10.1080/09638190010110758
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    1. Vassilis T. Rapanos, 2005. "Minimum Wage And Income Distribution In The Harris-Todaro Model," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 30(1), pages 1-14, June.

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