The New Palgrave Dictionary of Economics

2018 Edition
| Editors: Macmillan Publishers Ltd

Harris–Todaro Hypothesis

  • M. Ali Khan
Reference work entry


The Harris–Todaro hypothesis replaces the equality of wages by the equality of ‘expected’ wages as the basic equilibrium condition in a segmented, but homogeneous, labour market, and in so doing generates an equilibrium level of urban unemployment when a mechanism for the determination of urban wages is specified. This article reviews work in which the Harris–Todaro hypothesis is embedded in canonical models of trade theory in order to investigate a variety of issues in development economics. These include the desirability (or the lack thereof) of foreign investment, the complications of an informal sector and the presence of clearly identifiable ethnic groups.


Development economics Gains from trade Harris–Todaro hypothesis Harris–Todaro model Heckscher–Ohlin–Samuelson trade model Immiserizing growth Informal urban sector International trade theory Ricardo–Viner model Rural-urban migration Rybczynski theorem Stolper–Samuelson theorem Trade unions Underemployment Urban unemployment Urban wage determination Urban wage subsidies Wage differentials 

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Authors and Affiliations

  • M. Ali Khan
    • 1
  1. 1.