Chapter 7 Urbanization and Rural-Urban Migration: Theory and Policy Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 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. 7-2 Urbanization and Development Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 7-3 Urbanization Across Time and Income Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 7-4 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. 7-5 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% 65% 7-6 Urbanization in the World Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 7-7 Projected Urban and Rural Population MDCs and LDCs, 1950-2030 Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 7-8 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. 7-9 Largest Cities in the World Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 7-10 Mega-Cities: Cities with 10 Million+ Inhabitants Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 7-11 Size of Largest Cities Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 7-12 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. 7-13 Slums in Urban LDCs Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 7-14 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. 7-15 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. 7-16 Extent of R-U Migration Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 7-17 Components of Migration Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 7-18 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. 7-19 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. 7-20 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. 7-21 Informal Urban Labor Force Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 7-22 Informal Employment Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 7-23 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. 7-24 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. 7-25 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. 7-26 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. 7-27 Urban Unemployment Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 7-28 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. 7-29 Todaro’s R-U Migration Model Benefits from migration: • Higher urban wage • Enjoyment from urban entertainment Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 7-30 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. 7-31 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. 7-32 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. 7-33 Todaro’s Migration Decision Tree Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 7-34 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 7-35 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. 7-36 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. 7-37 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. 7-38