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Naveen is currently working on a farm in rural India and earning 22,000 rupees per year. Word comes that someone with little skill could earn
Naveen is currently working on a farm in rural India and earning 22,000 rupees per year. Word comes that someone with little skill could earn 65,000 rupees per year in the city, but the chances of getting such a job are only 40%. Moreover, he doesn't know anyone in the city who can help, so his initial costs will be high and he will be unemployed (wage=0) if he doesn't get this high-paying job. Calculate the Expected Value of Naveen's urban wage. Use this calculation and the Todaro model to discuss the factors that would determine whether or not it would be rational for Naveen to migrate in this scenario. How would your answer change if, in addition to the 40% chance of getting a high-paying job, there was a 50% chance that he could find a job in the informal sector earning 20,000 rupees per year
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