Suppose in Bangladesh, a minimum wage is instituted in the urban sector above the market clearing wage, whilst the rural traditional wage is market determined at a lower level than in the urban sector.

a. Discuss and show (using a Harris-Todaro Model) the impact of this policy on the rural traditional wage, the rural labour force, and the urban sector unemployment. Can we expect the urban sector wage to equal to the traditional sector wage after the markets equilibrate through migration?

b. What effects might the relocation costs and the introduction of factories in rural areas have on the equilibrium discussed in part (a)?