Download Chapter 1: Human Misery

Chapter 8:
Urbanization &
Rural-Urban Migration
Urbanization and Development

Economic development causes urbanization

There is a positive correlation with economic
development and urban population growth
Urbanization Across Time and Income
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 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
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: urban & rural: skilled
labor (e.g., government employees, teachers)
with education and license

Informal labor market: urban & rural: semiskilled 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
A Model of R-U Migration

Urban “informal” sector hires labor from
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–
–

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)
R-U Labor Movement
Formal:
Urban Sector
Informal:
Urban Sector
Formal:
Rural Sector
Informal:
Rural Sector
Todaro’s R-U Migration Model

Factors affecting migration decision
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–
–

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)
Todaro’s Framework of Migration Decision
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
Todaro’s R-U Migration Model
Non-economic factors inducing migration:


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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
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
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