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

Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 7-3 Urbanization and Development

Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 7-4 Urbanization Across Time and Income

Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 7-5 Urbanization Trend World urban population distribution (in billions) World MDCs 1.0 (31%) 1.1 (22%) LDCs 2.2 (69%) 4.0 (78%)

Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 7-6 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%

Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 7-7 Urbanization in the World

Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 7-8 Projected Urban and Rural Population MDCs and LDCs,

Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 7-9 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)

Copyright © 2009 Pearson Addison-Wesley. All rights reserved Largest Cities in the World

Copyright © 2009 Pearson Addison-Wesley. All rights reserved Mega-Cities: Cities with 10 Million+ Inhabitants

Copyright © 2009 Pearson Addison-Wesley. All rights reserved Size of Largest Cities

Copyright © 2009 Pearson Addison-Wesley. All rights reserved 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

Copyright © 2009 Pearson Addison-Wesley. All rights reserved Slums in Urban LDCs

Copyright © 2009 Pearson Addison-Wesley. All rights reserved 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

Copyright © 2009 Pearson Addison-Wesley. All rights reserved 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

Copyright © 2009 Pearson Addison-Wesley. All rights reserved Extent of R-U Migration

Copyright © 2009 Pearson Addison-Wesley. All rights reserved Components of Migration

Copyright © 2009 Pearson Addison-Wesley. All rights reserved 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

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

Copyright © 2009 Pearson Addison-Wesley. All rights reserved 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

Copyright © 2009 Pearson Addison-Wesley. All rights reserved Informal Urban Labor Force

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

Copyright © 2009 Pearson Addison-Wesley. All rights reserved 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

Copyright © 2009 Pearson Addison-Wesley. All rights reserved 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

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

Copyright © 2009 Pearson Addison-Wesley. All rights reserved 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

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

Copyright © 2009 Pearson Addison-Wesley. All rights reserved 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

Copyright © 2009 Pearson Addison-Wesley. All rights reserved Todaro’s R-U Migration Model Benefits from migration: Higher urban wage Enjoyment from urban entertainment

Copyright © 2009 Pearson Addison-Wesley. All rights reserved 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

Copyright © 2009 Pearson Addison-Wesley. All rights reserved 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

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

Copyright © 2009 Pearson Addison-Wesley. All rights reserved Todaro’s Migration Decision Tree

Copyright © 2009 Pearson Addison-Wesley. All rights reserved Wage Differentials & Employment Agricultural Wage RateManufacturing Wage Rate WMWM W* M W* A WAWA W** A q’ qE M M’ A A’ OAOA LALA L* A =L* M LMLM OMOM At W M, O M L M is urban employment and O A L A is rural employment. L A L M is the “migrant pool: Those who are either unemployed or engaged in low-skilled activities in informal sector

Copyright © 2009 Pearson Addison-Wesley. All rights reserved 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

Copyright © 2009 Pearson Addison-Wesley. All rights reserved 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

Copyright © 2009 Pearson Addison-Wesley. All rights reserved 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