urbanisation

Question 1

Factors pulling migrants into towns and cities

Answer 1

▪ The higher relative wage levels in urban areas
▪ A wider range of job opportunities
▪ Improved access to public services
▪ The opportunity to ‘manage risk’ by diversifying the income sources and asset structures of rural households

Question 2

Factors pushing migrants out of rural areas

Answer 2

▪ Rural unemployment
▪ Landlessness and exploitation
▪ Extreme poverty
▪ Civil conflict

Question 3

Why Does Urbanization Matter?

Answer 3

o urbanization is a central features of the evolution of human society
o Rural populations are expected to decline
o There will be an increase in megacities and slum populations

Question 4

Key features of the Harris-Todaro model

Answer 4

▪ Total labour force is constant: 𝐿𝐴 + 𝐿𝑀 = 𝐿
▪ Migration depends on expected rural-urban wage differentials
▪ Workers’ characteristics are homogenous, other than location – urban or rural

Question 5

The Harris-Todaro Model - The Model with Flexible Wages

Answer 5

Graph on slides

Question 6

The Harris-Todaro Model - Inflexible Modern Sector Wages

Answer 6

Graph on slides

Question 7

What if agricultural workers could decide to migrate based on the possibility of an urban job?

Answer 7

comparison between the actual agricultural wage and the expected value of the urban wage

Question 8

Expected value of the urban wage

Answer 8

𝐿𝑀/𝐿𝑈𝑆

Question 9

Implications of expected value of the urban wage

Answer 9

o 𝐿𝑀↑ = 𝐿𝑀/𝐿𝑈𝑆↑
o 𝐿𝑈𝑆↑ = 𝐿𝑀/𝐿𝑈𝑆↓

Question 10

Rural workers will migrate to the urban sector if

Answer 10

𝑊𝐴 < 𝐿𝑀/𝐿𝑈𝑆 (𝑊-𝑀)

Question 11

Rural workers will not migrate if

Answer 11

𝑊𝐴 > 𝐿𝑀/𝐿𝑈𝑆 (𝑊-𝑀)

Question 12

Equilibrium with Rural-Urban Migration - with graph

Answer 12

Graph on slides
▪ Rural workers will not continue to migrate indefinitely – only until the point where:
𝑊𝐴 = 𝐿𝑀/𝐿𝑈𝑆 (𝑊-𝑀)
At the new the equilibrium point 𝑍 we find:
▪ A smaller rural labour force 𝐿𝐴 and a rural wage which is higher than both 𝑊𝐴 and 𝑊𝐴∗
▪ A large share of workers unemployed 𝐿𝑈
In reality: These unsuccessful migrants will commonly enter into informal, urban employment

Question 13

Assuming all unsuccessful rural migrants would rather work as informal workers than be unemployed, the decision to migrate is based on

Answer 13

𝑊𝐴 = 𝐿𝑀/𝐿𝑈𝑆(𝑊-𝑀) + (1- 𝐿𝑀/𝐿𝑈𝑆)𝑊𝐼

Question 14

The Urban Informal Sector

Answer 14

o This type of economic activity is usually unregulated and unrecorded characterised by:
▪ Low barriers to entry, but…
▪ Uncertainty of incomes
▪ Marginalization and vulnerability

Question 15

key advantages of informal sector

Answer 15

o generate income
o offer affordable goods and services to low-income urban populations
o minimal capital requirements providing employment for low-skilled or unskilled workers
o very resilient to economic shocks

Question 16

substantial issues with a large informal sector

Answer 16

o loss of potential tax revenues for governments
o Workers often lack legal protections
o distort competition and undermine the viability of formal businesses
o Informal sector workers face social exclusion and discrimination

Question 17

The Debate on Urbanization and Growth

Answer 17

o Historically, no country has ever achieved significant modern growth without urbanization

Question 18

Arguments which are more in favour of urbanization being pro-growth

Answer 18

o Increased supply of labour to urban industry holding unit labour costs down (this is the Lewis argument)
o More efficient allocation of labour
o Improved quality of the labour force
o Enhanced potential for scale economies

Question 19

Arguments which are less in favour of urbanization being pro-growth - Growth-Inhibiting Arguments

Answer 19

o Urbanization creates mass urban unemployment (Todaro model)
o increase in slums
o deterioration in health status of the labour force
o Growing criminality
o Social exclusion and alienation of the poor
o Increasing external diseconomies

Question 20

Potential benefits of Rural-Urban migration

Answer 20

▪ Remittances from migrants
▪ Increases in rural wage rates (labour market)

Question 21

Potential costs of Rural-Urban migration

Answer 21

▪ Migration removing scarce labour skills that cannot be replaced in agriculture
▪ Farming may decline, and those left behind face higher risk of poverty