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Fridays Academy: Urbanization and Growth

Ignacio Hernandez's picture

From Raj Nallari and Indira Iyer's lecture notes.

Income and Employment

Urban cities provide drawing power for rural migrants seeking more economic opportunities. Duranton (2008) points out that labor mobility is crucial to the growth process as it generates new ideas and opportunities. Labor mobility responds to wage differentials across different locations. A study by Prud’homme (1996) indicates that the GDP per capita in most cities in Asian developing countries are higher than their national incomes. As seen in the table below, the per capita income in cities was 3.66 times the per capita income of the country in Shanghai, and 1.13 times the national average in Seoul.

GDP of Urban Areas Compared with National GDP

                                                                                                                                                                                                        Source: Prud’homme (1996) p. 101–103

However, not all living in urban areas get jobs in the formal sector. In fact, evidence points out that the bulk of the urban jobs are in the informal sector. Available estimates suggest that the size of informality ranges from 30 to 70 percent of GDP in developing countries. While the informal sector provides employment for many that cannot enter the formal labor market and supplies goods and services typically not offered by the formal sector, it is also characterized by relatively poor working conditions, lack of social insurance, operating outside the legal system, and is more vulnerable to economic fluctuations, which particularly affects the poor who have relatively little savings. The majority of the urban poor work in the informal sector.

Unemployment is typically higher for the urban poor, as is underemployment. For example in Dhaka, Bangladesh, a World Bank study  found that the unemployment rates for the poorest male workers are about 10 percent, twice that of the wealthiest (5 percent). Moreover, unemployment for poor women is also significantly greater with about 25 percent of the poor women being unemployed compared to 12 percent of the non-poor being unemployed.

Youth unemployment is a major problem in many cities, and increasingly linked to growing social problems and can create urban unrest. An ILO study (2004)  indicated that average youth unemployment rates were highest in the Middle East and North Africa Region (25.6 percent) and Sub-Saharan Africa (21 percent), and lowest in East Asia (7 percent) for 2003. The UN Population Fund predicts that, by 2030, 60 percent of those living in urban areas will be under the age of 18. The proportion of young people is particularly high in slum areas, where employment opportunities are limited. This combination of youth and poverty can make for high crime rates. Some demographers have forecast that the increasing concentration of humanity in big cities will lead to major conflicts affecting both urban areas and entire countries.

The issue of child labor is also a characteristic of urban poverty in many countries with the prevalence of child labor being highest in Sub-Saharan Africa. Although there is relatively little data on this, the latest ILO estimates for several African countries show that more than 26 percent of children aged 5-14 were economically active in 2004. While child labor typically had been a rural phenomenon with children working overwhelmingly with their families, it also exists in cities with children in the service sector, construction and manufacturing. Girls are typically the most vulnerable, often sent to work in the informal economy and as domestic workers. High levels of child labor translate into very low levels of school enrollment which then affects children’s opportunities later in life.


 Next Friday: Urban Slums


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