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The Todaro Paradox Revisited

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  • Zenou, Yves

Abstract

The Todaro Paradox states that policies aimed at reducing urban unemployment are bound to backfire: they will raise rather than reduce urban unemployment. The aim of this paper is to re-examine this paradox in the context of efficiency wage and search-matching models. For that, we study a policy that consists in decreasing the urban unemployment benefit. In an efficiency wage model, we find that there is no Todaro paradox while this is not always true in a search-matching model since a decrease in the urban unemployment benefit can increase both urban employment and unemployment.

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  • Zenou, Yves, 2005. "The Todaro Paradox Revisited," CEPR Discussion Papers 5402, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:5402
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    Cited by:

    1. Sergio Vergalli, 2011. "Entry and Exit Strategies in Migration Dynamics," Journal of Labor Research, Springer, vol. 32(4), pages 362-389, December.
    2. Mathan Satchi & Jonathan Temple, 2006. "Growth and labour markets in developing countries," Bristol Economics Discussion Papers 06/581, School of Economics, University of Bristol, UK.
    3. Wayne Edwards & Lee Huskey, 2008. "Job search with an external opportunity: an experimental exploration of the Todaro Paradox," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 42(4), pages 807-819, December.
    4. Bandopadhyay, Titas Kumar, 2014. "Efficiency Wage in the Frictional Labour Market- A Theoretical Analysis," MPRA Paper 60124, University Library of Munich, Germany.
    5. Mathan Satchi & Jonathan Temple, 2009. "Labor Markets and Productivity in Developing Countries," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 12(1), pages 183-204, January.
    6. Bandopadhyay, Titas Kumar, 2014. "Efficiency Wage and Endogenous Job Destruction in the DMP Model----- an Extension," MPRA Paper 59564, University Library of Munich, Germany.
    7. Bandopadhyay, Titas Kumar, 2014. "Labour Policies In The DMP Model—A Theoretical Analysis," MPRA Paper 59622, University Library of Munich, Germany.

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    More about this item

    Keywords

    Efficiency wages; Search-matching; Rural-urban migration; Policy;
    All these keywords.

    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration

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