Equilibrium urban unemployment in developing countries: Is migration the culprit?

This paper challenges the prediction of Todaro's model of rural-to-urban migration that an ‘increase in urban employment increases urban unemployed.’ It is shown that if the urban demand for labor is isoelastic or inelastic, creation of urban jobs causes urban unemployment to decline and urban-to-rural migration to take place. Moreover, urban job creation always reduces the rate of urban unemployment. The paper then remodels the urban job search process and derives the result that equilibrium urban unemployment would not vanish even if the urban-rural wage gap were eliminated.