We develop a Harris-Todaro (1970) type of model to analyse the effect of tourism development on urban unemployment problem. How tourism development affects unemployment and national income in this model is conditional on assumptions regarding intersectoral capital mobility. If capital is perfectly mobile among all sectors, then tourism development in either region does not affect national income but raises (lowers) urban unemployment if the agricultural sector is more capital (labour) intensive than the tourism sector when urban manufacturing sector has the highest capital intensity. However, with capital being sector specific to the tourism sector but mobile between the urban manufacturing sector and the rural agricultural sector, tourism development in the either region raises urban unemployment when the urban manufacturing sector has the highest capital intensity and always raises national income in South. If capital is specific to the urban manufacturing sector but is mobile between the agricultural sector and the rural tourism sector, then tourism development in either region always raises national income but lowers the level of urban unemployment if the agricultural sector is more capital intensive than the rural tourism sector.