Urbanization and Rural-Urban Migration: Theory and Policy

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

Urbanization Across
Time and Income

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%)

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

A
At WM, OMLM is urban employment and OALA M
is rural employment. LALM is the “migrant pool:
Those who are either unemployed or engaged in
low-skilled activities in informal sector q’
WM
WA
W*A q E W*M
W**A M’
A’
OA LA L*A=L*M LM OM

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

Urbanization and Rural-Urban Migration: Theory and Policy

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Chapter 7

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

• Economic development causes urbanization

• There is a positive correlation with economic

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

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

Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 7-4

World urban population distribution (in billions)

Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 7-5

Urban population shares of Asia and

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

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

Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 7-8

• Of the 15 largest cities, 4 are in MDCs

• By 2015, the ranking of these largest

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

Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 7-10

Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 7-11

Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 7-12

• Migrant workers move to nearby towns and

• They reside in slums and shanty towns

Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 7-13

Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 7-14

The LDCs experience rapid urban population

• Natural increase: birth rate > death rate

• Rural-urban migration: movement of rural

Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 7-15

• On average, about 50% of urban

• Rapid R-U migration has resulted in the

Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 7-16

Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 7-17

Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 7-18

• Formal sector: organized and regulated

• Informal sector: fragmented and

Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 7-19

• Formal labor market: skilled labor (e.g.,

• Informal labor market: semi-skilled and

Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 7-20

• Most rural migrants find jobs in the

• The “informal” urban labor force is a

Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 7-21

Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 7-22

Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 7-23

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

Disadvantages of investment in the urban

• 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

• Represent the bulk of the informal sector

• Earn low wages in unstable jobs with no

• Run micro-enterprises (e.g., home-made

• Engage in illegal activities (e.g., prostitution)

Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 7-26

• Urban open-unemployment is in double-

• The problem is much more serious because

– Discouraged workers are excluded