10.9. The Harris–Todaro model. (Harris and Todaro, 1970.) Suppose there are two sectors. Jobs in the primary sector pay wp; jobs in the secondary sector pay ws. Each worker decides which sector to be in. All workers who choose the secondary sector obtain a job. But there are a fixed number, Np , of primarysector jobs. These jobs are allocated at random among workers who choose the primary sector. Primary-sector workers who do not get a job are unemployed, and receive an unemployment benefit of

b. Workers are risk-neutral, and there is no disutility of working. Thus the expected utility of a primarysector worker is qwp + (1 − q)b, where q is the probability of a primarysector worker getting a job. Assume that b < ws < wp, and that Np/N <

(ws − b)/(wp − b).