Labor migration and the resulting unemployment have been one of the major issues in the traditional as well as contemporary global economic scenario. Economists have developed different models to explain the incidence of labor migration in the context of a dual economy. All these models are based on the assumption that there are two sectors that comprise a developing economy namely the primary sector or traditional agricultural sector and the secondary sector or modern industrial sector. The agricultural sector is characterized by surplus workforce; whereas, the industrial sector acts as the engine of growth for the economy.
In the context of labor migration and unemployment, the Lewis model, popularly known as the Dual Sector model, is worth mentioning. This model provides an explicit explanation of how the structural change propelled by labor transfer can bring about economic growth in a dual economy. Lewis model assumes that agricultural sector features disguised unemployment.
Here, the marginal productivity of the workers is very low or may even be zero. This in turn implies that migration of surplus labor workforce from the agricultural sector keeps the productivity of this sector unaffected. The Lewis model also assumes that the marginal product of labor in the industrial sector is quite high. Firms operating in the industrial sector reinvest their profits in the production process, thereby enhancing the opportunities of gainful employment. The migrated labor force adds to the output and profitability of the industrial sector. Thus, as per the Lewis model, labor transfer from rural to urban sector reduces the problem of disguised unemployment.
However, there are some other crucial points that need to be considered when it comes to labor migration and unemployment. The capacity of the industrial sector to absorb the surplus labor force of the rural sector crucially depends on the amount of reinvested profit and the pace of capital accumulation. In most of the developing economies in today’s world, the modern industrial sector makes investments in capital investment technologies to speed up the production procedures.
The formal sector in urban area mostly employs the skilled section of the workforce. The migrated rural workers, being unskilled, are not usually absorbed by the formal sector. The urban unorganized sector makes use of these surplus rural workers. Being unskilled, the migrated workers in most cases do not come under the purview of the labor laws or wage laws implemented by the governments at the national and state levels. This implies that they continue to be deprived even after migration. In some cases, the migrated workforce may even fail to get employment in the unorganized sector as well. So, the unemployment persists even after rural urban migration and that is the most pathetic part of the story.
Labor migration and unemployment have serious impact on the situation of urban landscape. If rural urban migration continues for a substantially long period of time, the urban locality is bound to face the problem of population explosion. It has been observed that unplanned migration has resulted in scarcity of basic facilities in the urban area. Slumps pop up here and there, thereby making the urban backdrop appear messy and unorganized.
In conclusion, it can be said that gainful employment opportunities in the rural and semi urban areas are expected to bring about some positive changes in this situation.
Amid a recovering world economy beset by risks, the outlook for Asia–Latin America economic ties seems bright. Asia needs commodities for its dynamic global factory and Latin America has abundant natural resources. Asia needs food for its large population and Latin America has fertile agricultural land.
Eric J. Gleacher Distinguished Service Professor of Finance at the Booth School of Business at the University of Chicago. IMF’s Chief Economist from September 2003 to January 2007. Inaugural recipient of the Fischer Black Prize.
Mario I. Blejer is a former governor of the Central Bank of Argentina and former Director of the Center for Central Banking Studies at the Bank of England. Eduardo Levy Yeyati is Professor of Economics at Universidad Torcuato Di Tella and Senior Fellow at The Brookings Institution.
Vice President and Director of the Global Economy and Development Program at the Brookings Institution. Former Turkish Minister of State for Economic Affairs. Head of the United Nations Development Program (UNDP) from 2005-2009.