Suppose the wage WF is the wage in the formal, urban labor market, and WI is the wage in the informal, rural labor market. Suppose individuals will move from the rural area to the city seeking employment if: WI < P*WF , where the probability of employment P = 1 – (unemployment rate).
For part (a) only, use the following parameter values: P = .9, WI = 1 and WF = 2
( )under these conditions, will the individual migrate? (yes, no or indifferent)
( )Now, in abstract terms of WI and WF, what is the unemployment rate in the formal sector at which people stop migrating?