Assume that a typical unskilled rural worker in a developing country would be paid 2 dubyas a week if he migrates to the city and finds a job. However, the unemployment rate for unskilled workers is 40 percent in the city.
a. What does the Harris-Todaro model predict the worker’s rural wage is?
b. Assume now that the government is considering funding a project in the city that would use substantial numbers of unskilled workers. Using your answer to a, suggest a reasonable upper bound estimate and reasonable lower bound estimate of the market wage rate for unskilled workers that the government might use in conducting a CBA of the proposed project.