Beyond Todaro: A Re-Consideration of Comparative Macroeconomic Relevance between Unemployment and Migration in Developing Countries

This paper investigates comparative relevance of intersectoral migration of agricultural labor and change in unemployment for short-run macroeconomic performance. Migration of this kind and change in unemployment occur simultaneously in every country all over the world. Data reveal that quantity of the former exceeds that of the latter many times and that the former links growth rate and inflation rate much more closely than the latter does in some developing countries, which is inconsistent with Todaro model making migration induced by changes in unemployment and negating immediate relations between migration and macroeconomic performance. This paper set up a criterion composed of both rates between change in unemployment and migration and between marginal products of agricultural and nonagricultural labor to determine which of both migration and unemployment may have greater output effects. With it the data of the United States and China are analyzed. It is found that the output effects of change in unemployment should be greater in the United States during the post-war era, while migration could affect aggregate output far more strongly in China since 1978. Therefore, a short-run macroeconomic framework for China and similar developing countries should replace unemployment with migration as one of core variables to analyze the relationships among migration, economic growth and inflation.