copyright © 2009 pearson addison-wesley. all rights reserved. chapter 7 urbanization and...

Copyright © 2009 Pearson Addison-Wesley. All rights reserved.

Chapter 7

Urbanization and Rural-Urban Migration: Theory and Policy

Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 7-2

Urbanization and Development

• Economic development causes urbanization

• There is a positive correlation with economic development and urban population growth


Urbanization and Development


Urbanization Across Time and Income


Urbanization Trend

World urban population distribution (in billions)

2000 2025World 3.2 5.1

MDCs 1.0 (31%) 1.1 (22%)

LDCs 2.2 (69%) 4.0 (78%)


Distribution of Urban Population

Urban population shares of Asia and Africa are expected to rise at the expense of Latin America:

2000 2025

Africa 18% 20%

Latin America 22% 15%

Asia 60% 65%


Urbanization in the World


Projected Urban and Rural Population MDCs and LDCs, 1950-2030


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)


Largest Cities in the World


Mega-Cities: Cities with 10 Million+ Inhabitants


Size of Largest Cities


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


Slums in Urban LDCs


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


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


Extent of R-U Migration


Components of Migration


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


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)


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


Informal Urban Labor Force


Informal Employment


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


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


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)


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


Urban Unemployment


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



Benefits from migration:

• Higher urban wage

• Enjoyment from urban entertainment



Costs of migration:

• Transportation cost

• Opportunity cost of being unemployed

• Greater living expenses

• Psychic cost of being away from home and family



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



Non-economic factors inducing migration:

• Information flow about job openings in the “informal” sector

• City lights: movie theaters, restaurants, amusement parks, etc.


Todaro’s Migration Decision Tree


Wage Differentials & Employment

Agricultural Wage Rate Manufacturing Wage Rate

WM

W*MW*A

WA

W**A

q’

q E

M

M’

A

A’

OA LA L*A=L*M LM OM

At WM, OMLM is urban employment and OALA

is rural employment. LALM is the “migrant pool: Those who are either unemployed or engaged in low-skilled activities in informal sector


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


Policies Inducing R-U Migration

• Educational opportunities in urban areas: R-U brain drain

• Cash and in-kind subsidies to government employees and factory workers


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

copyright © 2009 pearson addison-wesley. all rights reserved. chapter 7 urbanization and...

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