ELSEVIER Economics Letters 54 (1997) 277-282 economics letters Has the wage curve nullified the Harris-Todaro model? Further US evidence Mark D. Partridge a'*, Dan S. Rickman b "Department of Economics, St. Cloud State University, St. Cloud, MN 56301-4498, USA t'Oklahoma State Universi~.. OK, USA Received 28 June 1996; received in revised tbrm 19 December 1996; accepted 22 January 1997 Abstract Economists traditionally believed that regional unemployment rates and wages were positively related. This notion has recently been attacked by proponents of the wage curve, which suggests the exact opposite. This paper attempts to replicate the wage curve using different US data. © 1997 Elsevier Science S.A. © 1997 Elsevier Science S.A. Keywords: Wage levels; Regional unemployment; Migration JEL classification: J31" J64; R23 I. Introduction Traditionally, regional and labor economists generally believed that a positive relationship existed between regional wages and regional unemployment. This idea dales to Adam Smith (1776) and was mathematically formalized by Harris and Todaro (1970). Supporting empirical evidence |br this relationship was found in many studies including Hall (1972), Marston (1985), and Topel (1986). The intuition for the Harris-Todaro (HT) result is simple. In a multi-regional labor market, equilibrium is attained when expected utility is equalized across all regions and net migration between regions equals zero. Hence, regions that persistently have higher unemployment rates require higher wages to act as a compensating differential. Among other things, the HT model has become an important element in regional and labor economic analysis of migration flows (e.g. Greenwood et al., 1991). Recently, the HT compensating differential model has come under attack in several studies, most notably those by Blanchflower and Oswald (BO). These studies are clearly summarized in their book (Blanchflower and Oswald, 1994). Instead of a positive relationship, B© argue that wages are in fact negatively related to (contemporaneous) unemployment. B© generally prefer an efficiency wage interpretation for this result. B© econometrically estimated their wage curve for numerous countries. They claim that the *Corresponding author. Tel.: (320) 255-2072; fax: (320) 255-2228; e-mail: mpanridge@tigger.stcloud.msus,edu. 0165-1765/97/$17.00 © 1997 Elsevier Science S.A. All rights reserved Pll S0165-1765(97)00028- i