1. Rural-Urban Migration Consider the following variation of the basic Harris-To

Question

1.     Rural-Urban Migration

Consider the following variation of the basic Harris-Todaro Model. Assume that the going wage in agriculture is normalized at 1. The wage in the formal urban sector is 3. The wage in the informal sector is 0.5. Additionally, 20% of working adults who live in the city are employed in the formal sector. Also, assume that the discount rate is 10% and that the lifetime of an individual is only 2 periods. Consider the following situations: [4 points in total]

a)     Assume that by spending more time in the city the chances of getting a job improve for the individual. The chance of getting a job after spending a period in the city is now 30%.

Explanation / Answer

I) 0.3%

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