cause the fraction of workers whose income was determined by market forces rather than family sharing increased.
We now turn to Figure 2, which is based on the model of Harris and Todaro (1970).We see that the marginal value product of labor curves form Figure I have been retained.The first majoy change in Figure2 relative to Figure 1 is that the minimum wage now applies only to industry rather than to both industry and agriculture.It is therefore relaeled.Harris and Todaro view the minimum wage as determined not by the need for subsistence but rather by institutional forces such as government regulations and union contracts, which in turn are seen as effective in urban but not in rural areas. The notion of a subsistence wage is absent from the Harris and Todaro model entirrely, so there is no floor underneath the agricultural wage. This raises the question, why does the agricultural wage not fall to at which agricultural employment and there is no underemployment To answer we need to describe how the urban labor market functions in the Harris and Todaro model. We will then be able to generate the second major change in Figure 2 relative to Figure 1, the addition of the curve.
In the Harris and Todaro model the urban labor market can be described as a market for casual labol, in which every day employers hire anew the amount of workers they need that day. (This is more typically observed in construction or dock work than in manufacturing.)All workers picked on a given day receive the wage , and the remainder are unemployed that day and earn zero. Morever, each day's drawing is random and independent of the previous day's drawing:being picked today does not make a worker more or less likely to be picked tomorrow. Every urban worket's odds of being picked on any day are thus equal to the ratio of total urban labor demand to total urban labor suppy. It follows that every urban worker's income averages out to in the long run. Returning to Figure 2 ,we see that if the agri-
cause the fraction of workers whose income was determined by market forces rather than family sharing increased.We now turn to Figure 2, which is based on the model of Harris and Todaro (1970).We see that the marginal value product of labor curves form Figure I have been retained.The first majoy change in Figure2 relative to Figure 1 is that the minimum wage now applies only to industry rather than to both industry and agriculture.It is therefore relaeled.Harris and Todaro view the minimum wage as determined not by the need for subsistence but rather by institutional forces such as government regulations and union contracts, which in turn are seen as effective in urban but not in rural areas. The notion of a subsistence wage is absent from the Harris and Todaro model entirrely, so there is no floor underneath the agricultural wage. This raises the question, why does the agricultural wage not fall to at which agricultural employment and there is no underemployment To answer we need to describe how the urban labor market functions in the Harris and Todaro model. We will then be able to generate the second major change in Figure 2 relative to Figure 1, the addition of the curve.In the Harris and Todaro model the urban labor market can be described as a market for casual labol, in which every day employers hire anew the amount of workers they need that day. (This is more typically observed in construction or dock work than in manufacturing.)All workers picked on a given day receive the wage , and the remainder are unemployed that day and earn zero. Morever, each day's drawing is random and independent of the previous day's drawing:being picked today does not make a worker more or less likely to be picked tomorrow. Every urban worket's odds of being picked on any day are thus equal to the ratio of total urban labor demand to total urban labor suppy. It follows that every urban worker's income averages out to in the long run. Returning to Figure 2 ,we see that if the agri-
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