Yves Zenou

Harris-Todaro models with a land market

This paper adds a land market to a standard Harris-Todaro framework. In the standard model, the equilibrating force that limits rural-urban migration is a decline in the probability of formal employment, which follows from enlargement of the informal sector. The key insight of the present paper, borrowed from Brueckner (1990) [Brueckner, J.K., 1990. Analyzing Third World urbanization: A model with empirical evidence. Economic Development and Cultural Change 38, 587–610], is that urban land-rent escalation provides an additional force that limits the extent of migration. The most striking implication of this modified model is that formal-sector growth may not lead to additional migration from rural areas. The reason is that, because of land-rent escalation, such growth may depress a migrants expected utility despite the improved chance of obtaining a formal job. In the second part of the analysis, the efficiency-wage model is used to make wages and employment in the formal sector endogenous instead of fixed. While many comparative-static effects are ambiguous in this more-complex model, the role of the land market is basically unaffected.

Efficiency Wages, Involuntary Unemployment and Urban Spatial Structure

A labor market model is developed within an urban spatial context, where it is shown that efficiency-wage policies can lead to significant levels of involuntary unemployment. Commuting cost differences between workers and nonworkers tend to increase unemployment, and competition for land tends to segregate workers and nonworkers, with nonworkers relegated to the urban fringe. These findings are extended to a two-city system, where it is shown that even with free mobility of workers, significant wage and unemployment differentials can exist between cities characterized by different levels of productivity.

How to Finance Education when the Labor Force is Heterogeneous

One of the key-problems in modern economies is the splitting of the cost of education between workers, firms and the government. Ever since the pioneering work of Becker (1964), the demand for education is analyzed with investment models. The concept of human capital appears to be central for the study of several phenomena. In particular, Becker (1964) introduces a fundamental distinction between general human capital and specific human capital. The former refers to a general level of ability which has value to all firms in the economy. The latter refers to specific abilities which have values to only one firm. It is part of the conventional wisdom that the cost of general training is to be borne by workers only, whereas the cost of specific training is to be shared by firms and workers because both parties can share the corresponding returns (Hashimoto (1981) and Parsons (1986)). The potential mobility of workers across firms would then determine the way the cost and the return of education are shared.