1 Lecture 6 Don DeVoretz INTERNAL MIGRATION: QUO VADIS ? BOOM OR BUST ?

2 QUESTIONS: 1. Why can migration be beneficial to the individual and harmful to society ? – a. What are the externalities and – b. What are the false Expectations ? 2. What is the "optimal size" of a city ? – a. Why is Mexico City with 24 million dysfunctional and Tokyo not ?

3 Stylized Facts City1990 (mil)2000 (mil) Mexico City Shanghai Delhi Lagos Manila Tokyo

4 More Questions 4. What is the motivation for the individual to move ? –a. Economic motivation: Competing Views i. Human capital model-based upon rate of return earnings Age Educated Mover’s earnings No education-no move E=0 x

5 Economic Motivation continued ii. Labour market adjustment: –Expected wage differential, distance and friends. Labour S,D Wage modern Wage ag Modern labour demand Ld Ag labor demand Ld L0 Ls No MigLs +MIG Wage equiol

6 Non-economic motivation: i. Demographic model: – differential urban-rural fertility rate ii. Gravity model: –M ij,t = L h (M ij,t ) M ij,t = total number of movers per 1,000 pop in t where L > 0 and h <0 or infinite –Example, L=3, h=0 then M ij, = M ij,

7 More Non-Economic Motives iii. Intergenerational stages Ag Intermediate City Metropole ROW

8 Intergenerational Moves Ag-Ag: traditional slash and burn ag. Africa Ag-Intermediate. Unskilled temporary –1st generation; male Intermediate-Metropole: Education –2nd generation; skilled and permanent Metropole-ROW: 3rd generation of brain drain

9 Philippines: Case Study a. Rate of movement –range from 10 to 40 per 1,000 b. Income gains from movement –Function of age and education over 40, uneducated or educate close to zero 20-30, rural-urban secondary had 40% r of r –Greatest incentive to move is young-educated

10 Philippines continued c. Costs of movement –Small, unemployment costs absorbed by friends d. rate of return from movement –C ij = ( Y i -Y j )/ (1+r) t range from zero, over 40 to 40% for 20 with post secondary education e. Size of surplus in WA Lewis model – less than 1/2 of 1% increment in investment

11 Policy implications: –Given small surplus, WA Lewis model not apply –3/5 migrants remain underemployed in urban area –Policy options to stem the flow wage subsidies, food price subsidies Multinationals, Subsidized education

12 End of Show