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Title:The Todaro paradox revisited PDF Logo
Authors:Zenou, Yves
Issue Date:2005
Series/Report no.:IZA Discussion Papers 1861
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.
Subjects:efficiency wages
search-matching
rural-urban migration
policy
JEL:D83
J41
J64
O15
Document Type:Working Paper
Appears in Collections:IZA Discussion Papers, Forschungsinstitut zur Zukunft der Arbeit (IZA)

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