In a brilliant and pioneering paper, John Harris and Michael Todaro introduced a model with two sectors, manufacturing (urban) and agriculture (rural), a (sticky) minimum wage in manufacturing and consequent unemployment. They also introduced a labor allocation mechanism under which, instead of the usual equalization of actual wages, the actual rural wage was equated with the expected urban wage; the latter was defined as the (sticky) minimum wage weighted by the rate of employment, so that, unlike in the standard rigid-wage models of trade theory (for example, Gottfried Haberler, Bhagwati, Harry Johnson, Louis Lefeber, and Richard Brecher), the unemployment resulting from the minimum wage is to be construed as specific to the urban sector.
Labor and Employment Law | Labor Economics | Law
T.N. Srinivasan & Jagdish N. Bhagwati,
On Reanalyzing the Harris-Todaro Model: Policy Rankings in the Case of Sector-Specific Sticky Wages,
Am. Econ. Rev.
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