Chapter 8: Urbanization & Rural-Urban Migration

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

Urbanization Across Time and Income

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 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

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: urban & rural: skilled labor (e.g., government employees, teachers) with education and license Informal labor market: urban & rural: 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

A Model of R-U Migration Urban “informal” sector hires labor from Urban “informal” markets (e.g., shop keepers) Rural “formal” markets (e.g., tractor drivers) Rural “informal” markets (e.g., farm workers) Urban “formal” sector hires labor from Urban “formal” markets (e.g., teachers) Urban “informal” markets (e.g., drivers)

R-U Labor Movement Formal: Formal: Urban Sector Rural Sector Informal:

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 “expected” benefits exceed the costs (in present value)

Todaro’s Framework of Migration Decision

Todaro’s R-U Migration Model Benefits from migration: Difference between “expected” urban income and rural income (R-U wage differential) Psychic benefits Costs of migration: Transportation cost Opportunity cost of being unemployed Difference in living expenses Psychic costs

Todaro’s R-U Migration Model Non-economic factors inducing migration: Distance City lights: movie theaters, restaurants, etc. Relative living in urban areas helping reduce living expenses Information flow about job openings in the “informal” sector

Policies Inducing R-U Migration Neglect of agriculture Urban bias development strategies Job creation in urban areas Educational opportunities: R-U brain drain Urban wage subsidies

Policies Reducing R-U Migration Eradicate poverty and reduce population growth Promote rural and agricultural development Expand small-scale, labor-intensive industries Eliminate factor-price distortions and adopt “appropriate” production technologies Modify direct link between education and employment