The Todaro Paradox Revisited

Yves Zenou

No 1861, IZA Discussion Papers from Institute of Labor Economics (IZA)

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 reexamine 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)
Pages: 27 pages
Date: 2005-11
New Economics Papers: this item is included in nep-dev, nep-lab and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

Published - revised version published as 'Rural-Urban Migration and Unemployment: Theory and Policy Implications' in: Journal of Regional Science, 2011, 51 (1), 65 - 82

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