Chapter 7 Urbanization and Rural-Urban Migration Theory and

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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. 2

Urbanization Trend World urban population distribution (in billions) 2000 2025 World 3. 2 5. 1 MDCs 1. 0 (31%) 1. 1 (22%) LDCs 2. 2 (69%) 4. 0 (78%) Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 5

Distribution of Urban Population Urban population shares of Asia and Africa are expected to rise at the expense of Latin America: 2000 Africa Latin America Asia 18% 22% 60% Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 2025 20% 15% 6

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. 9

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. 13

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. 15

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. 16

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. 19

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. 20

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. 21

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. 24

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. 25

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. 26

Urban Unemployment • Urban open-unemployment is in doubledigits 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. 27

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. 29

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. 31

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. 32

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. 33

Wage Differentials & Employment Agricultural Wage Rate A Manufacturing Wage Rate 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 M q’ WM WA q W*A E W*M M’ W**A OA LA A’ L*A=L*M Copyright © 2009 Pearson Addison-Wesley. All rights reserved. LM OM 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 Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 36

Policies Inducing R-U Migration • Educational opportunities in urban areas: U brain drain R- • Cash and in-kind subsidies to government employees and factory workers Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 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, laborintensive 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. 38