Subsidy policies with capital accumulation: Maintaining employment levels

We study a dual economy model of growth and unemployment in the presence of Harris-Todaro type labor migration. The model is a discrete time model of economic growth with given population but endogenous migration of labor. The economy tries to reach development in the quickest possible time while not allowing unemployment to rise above a socially acceptable level. We characterize situations under which maximizing the accumulation of capital in each period is optimal. We also study how particular taxes and subsidies affect unemployment and capital accumulation. Finally, we show that a higher initial capital stock does not necessarily mean a quicker attainment of self-sustained full employment.