Urbanization and Rural-Urban Migration: Theory and Policy

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1 Urbanization and Rural-Urban Migration: Theory and Policy

2 In this unit we would: 1.1 Examine the potential role of cities both modern sector and urban informal sector-in fostering economic development 1.2 Rurual urban labour transfer in the context of rapid growth and high urban unemployment 1.3 Evaluation of various policies options for LDC governments may wish to pursue 7-2

3 Urbanization and Development Economic development causes urbanization There is a positive correlation with economic development and urban population growth 7-3

4 Urbanization and Development Highest- income countries such as Denmark and Luxenborg are among the most urbanised while the verry poor countries such as Rwanda are among the least urbanised 7-4

5 Urbanization Across Time and Income Each line represents the trajectory of one country, starting from the solid dots(1970 income and urbanization level for a given country ending at the end of the line segment marked by a diamond representing the corresponding 1995 income and urbanization level for the same country ) 7-5

6 Urbanization Trend World urban population distribution (in billions) World MDCs 1.0 (31%) 1.1 (22%) LDCs 2.2 (69%) 4.0 (78%) 7-6

7 Distribution of Urban Population Urban population shares of Asia and Africa are expected to rise at the expense of Latin America: Africa 18% 20% Latin America 22% 15% Asia 60% 65% 7-7

8 Urbanization in the World 7-8

9 Projected Urban and Rural Population MDCs and LDCs,

10 Most Populated Cities Of the 15 largest cities, 4 are in MDCs (LA, NY, Tokyo, and Osaka) and 11 are in LDCs By 2015, the ranking of these largest cities will change in favor of the LDCs (e.g., NY falls from no. 3 to 11) 7-10

11 Largest Cities in the World 7-11

12 Mega-Cities: Cities with 10 Million+ Inhabitants 7-12

13 Size of Largest Cities 7-13

14 Location of Migrant Workers Migrant workers move to nearby towns and large cities, and especially the capital city They reside in slums and shanty towns where low cost housing is available 7-14

15 Slums in Urban LDCs C o p y rig h t P e a rs o n A d d is o n -W e s le y. A ll rig h ts re s e rv e d. 7-15

16 Urbanization The LDCs experience rapid urban population growth because of Natural increase: birth rate > death rate Rural-urban migration: movement of rural workers to urban areas 7-16

17 Contribution of R-U Migration On average, about 50% of urban population growth of the LDCs is due to R-U migration Rapid R-U migration has resulted in the construction of slumps and shanty towns that house a large percentage of urban population 7-17

18 Extent of R-U Migration 7-18

19 Components of Migration 7-19

20 Dualistic Economic Structure Formal sector: organized and regulated economic system (e.g., government agencies, banks); it generates 2/3 of GDP Informal sector: fragmented and unregulated economic system (e.g., street vendors, loan sharks); it generates 1/3 of GDP 7-20

21 Dualistic Labor Market Formal labor market: skilled labor (e.g., government employees, teachers) and professionals with education and license Informal labor market: semi-skilled and unskilled labor (e.g., small business, street vendors) 7-21

22 Urban Informal Sector Most rural migrants find jobs in the informal urban labor markets The informal urban labor force is a large component of the urban labor force 7-22

23 Informal Urban Labor Force 7-23

24 Informal Employment 7-24

25 Developing Urban Informal Sector Advantages of investment in urban informal sector Contributes to economic growth Requires small capital investment Requires low cost of training and education Supplies semi-skilled labor to industry Uses labor-intensive technology to create jobs 7-25

26 Developing Urban Informal Sector Disadvantages of investment in the urban informal sector Induces R-U migration Exerts pressure on urban infrastructure Adds to pollution, congestion, and crime 7-26

27 Women in U-Informal Sector Represent the bulk of the informal sector labor supply Earn low wages in unstable jobs with no benefits (e.g., housekeeping) Run micro-enterprises (e.g., home-made foodstuffs and handicrafts) Engage in illegal activities (e.g., prostitution) 7-27

28 Urban Unemployment Urban open-unemployment is in double-digits in many LDCs The problem is much more serious because Discouraged workers are excluded Underemployment is not measured 7-28

29 Urban Unemployment 7-29

30 Todaro s R-U Migration Model Factors affecting migration decision Expected urban income Probability of finding an urban job Cost of living in urban areas Decision criterion: Migration will take place if the present value of expected benefits exceed costs 7-30

31 Todaro s R-U Migration Model Benefits from migration: Higher urban wage Enjoyment from urban entertainment 7-31

32 Todaro s R-U Migration Model Costs of migration: Transportation cost Opportunity cost of being unemployed Greater living expenses Psychic cost of being away from home and family 7-32

33 Todaro s R-U Migration Model Non-economic factors inducing migration: Distance: the farther the distance, the larger is the transportation cost Relatives living in urban areas helping reduce living expenses 7-33

34 Todaro s R-U Migration Model Non-economic factors inducing migration: Information flow about job openings in the informal sector City lights: movie theaters, restaurants, amusement parks, etc. 7-34

35 Policies Inducing R-U Migration Neglect of agriculture: industrialization at the expense of agricultural development Urban bias development strategies: investment in urban industrial development Job creation in urban areas by government and manufacturing and services industries 7-37

36 Policies Inducing R-U Migration Educational opportunities in urban areas: drain R-U brain Cash and in-kind subsidies to government employees and factory workers 7-38

37 Policies Reducing R-U Migration Eradicate poverty and reduce population growth Promote rural and agricultural development Create jobs in rural areas: expand small-scale, labor-intensive industries Eliminate factor-price distortions and adopt appropriate production technologies Modify direct link between education and employment 7-39

Chapter 7. Urbanization and Rural-Urban Migration: Theory and Policy 7-1. Copyright 2012 Pearson Addison-Wesley. All rights reserved.

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