Working Paper Series
The Todaro Paradox Revisited
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; (follow links to similar papers)
JEL-Codes: D83; J41; J64; O15; (follow links to similar papers)
25 pages, November 9, 2005
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