The Todaro Paradox Revisited

Yves Zenou

No 5402, CEPR Discussion Papers from Centre for Economic Policy Research

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.

Keywords: Efficiency wages; Search-matching; Rural-urban migration; Policy (search for similar items in EconPapers)
JEL-codes: D83 J41 J64 O15 (search for similar items in EconPapers)
Date: 2005-12
New Economics Papers: this item is included in nep-dev and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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Working Paper: The Todaro Paradox Revisited (2005)
Working Paper: The Todaro Paradox Revisited (2005)
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