4 Urban—rural structural adjustment, urban unemployment with traded and non-traded goods

This chapter ¹ presents a generalized version of the Harris—Todaro (HT) model which was developed to explain urban unemployment in the context of Third World countries. ² The HT model is a variation of the two-sector general equilibrium framework, as developed in Chapter 1, and represents a pioneering attempt to explain urban unemployment and migration in poor countries. The HT model consisted of two regions, urban and rural. Each region produced only one commodity: a manufactured good in the urban region and an agricultural good in the rural area. These regions were linked via a labour migration function. This link involved an urban—rural wage differential which determined the quantity of labour supplied to the urban region from the rural area. This differential, along with the sticky minimum wage, determined the pool of urban unemployed. The HT model has been a subject of intensive enquiry in both the development and trade literature. In the former case it has attracted attention because of its realism and important policy implications while in the trade context the HT model has been linked with the general body of trade and distortion literature. ³