Chapter 8: Urbanization & Rural-Urban Migration

1. Chapter 8: Urbanization & Rural-Urban Migration

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

3. Urbanization Across Time and Income

4. 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 Urbanization

5. 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

6. 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

7. 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)

8. 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

9. 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)

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

11. 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)

12. Todaro’s Framework of Migration Decision

13. 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

14. 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

15. 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

16. 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