Since the first industrial revolutions in Europe, countries undergoing rapid demographic transitions have experienced significant migration into their urban centers of production.Many different theorists have debated the forces behind such patterns of migration. Two hypotheses control the majority of the support of such theorists. The first hypothesis, argued primarily by demographers, is known as the “rural push” hypothesis. It maintains that as a result of rapid population growth, available farm acreage decreases, forcing landless labor to find alternative occupations in the cities. The second hypothesis, argued primarily by economists, is known as the “urban pull” hypothesis. It maintains that highly lucrative economic conditions within cities draw workers from rural areas.
In this paper I will address the “urban pull” hypothesis, showing how economic efficiency in city labor markets influences workers from the rural sector. I will first show how wage differentials, labor direction, low unemployment growth in cities, and migrant networking result in efficient and dynamic labor markets. I will go on to discuss how the increased flexibility of workers and the development of cities into positive outlets for entrepreneurial creativity have resulted in surgences of urban entrepreneurism. Lastly I will prove that urban migration has positive effects on rural labor markets, concluding with the benefits of the impending urban investment.
Among urban occupations and between city and rural alternatives, there exists drastic differentiation in wages. This condition is closely related to worker productivity, which is rooted in education, skills, and other forms of human capital. Particularly in developing countries, rural areas are often deprived of sufficient infrastructure to support such human capital as education. As a result, unskilled migrants who move to the cities make relatively higher wages for low-level work, and they can send their children to higher quality schools where they will develop skills to secure high paying jobs in the future. This evidence indicates that urban labor markets are more efficient at allocating resources than rural labor markets.
It would seem that this migration to cities in search of more efficient resources would exacerbate all previous resource misallocation. Economists have found this to be true at a minor level, but nonetheless a cost-effective externality implicit in major economic gain. The end result is a significant increase in the net productivity of the economy by directing labor to locations to where it can earn a higher wage and make a greater contribution to economic production.
Further evidence of this increase in net productivity in cities is in the decline of open unemployment rates and underemployment rates in urban areas during the 1970’s, 80’s, and 90’s. It can be surmised that these declines stem from the recognition of the competitive earning power of work in the informal sector. Further, this recognition suggests well-functioning information flows through migrant networks. One particular study (Peterson, 1989), shows that unemployment rates of recent migrants are significantly low. This hints that new migrants are investigating job possibilities before making a commitment to move, and already have an active network of extended family or village members already living in the city, from whom they can receive information and assistance in lining up jobs.
As the economic efficiency in urban labor markets has increased, cities have become positive outlets for entrepreneurial businesses (business in the private sector). Studies of migration patterns show that migration is a highly self-selective process. Inherent in this is that many of those who do move to cities tend to be risk takers willing to try to build a business on their own. In rural villages, microeconomies are much more limited with constrained social and economic patterns. In addition, the consumer base is smaller which entails less aggregate demand for the many forms of unconventional production inherent in entrepreneurial businesses. The larger consumer base and freer socio-economic systems of cities conversely appear as much more positive outlets for such business creativity in the private sector.
Since the 1970’s there has been an increasing number of private sector success stories, which indicates that cities have experienced an increasing amount of entrepreneurial flexibility. One good example is the growth of export-oriented clothing production in Bangladesh. In the 1970’s, the manufacturing sector of Bangladesh was small and very traditional. Its primary export was jute products, which brought very low returns. In fact, Bangladesh was the second poorest country in the world at that time. But in the early 1980’s a new export garment industry sprouted quickly.
A new Bangladesh firm (Desh) made an agreement with the South Korean firm (Daewoo) in 1979. In return for providing Desh with hundreds of sewing machines and business training to its staff of 130, Daewoo would receive an eight- percent royalty of Desh’s sales. Only a year later Desh had 400 sewing machines and 500 employees. In its first seven years of production Desh sold 2.3 million shirts for returns equivalent to 5.3 million U.S. dollars. In just the first few years of production 115 of the original 130 employees who were trained in South Korea left Desh and started their own businesses. As a result, by 1985 700 garment exporting businesses operated in the cities of Bangladesh, with export sales of over 400 million U.S. dollars. Clothing production had clearly replaced jute as the nation’s leading export. What this example shows is that there are people willing to take the risk of establishing their own business, and they will take that risk when given the proper outlet. But as long as they are encased in their rural community’s traditional production patterns, they won’t proactively pursue their personal business initiatives.
As hinted earlier in this paper, this urban migration has positive effects on the rural labor market as well. In the 1980’s there were a series of structural adjustment programs implemented in developing countries that almost universally reduced public subsidies and price distortions. They also increased agricultural prices and earnings, which has greatly reduced the urban bias found particularly in the capital cities of these developing countries. Public workers in urban areas experienced sizable employment reductions and real wage losses. Food subsidies for large cities were greatly reduced, and charges for public services began moving toward cost recovery. Economists often argue that once these price signals are set up right, there will be greater justification for letting the markets operate, even with the result of rapid urban growth (Peterson, 1991).
Successful urban growth results directly with higher demand for domestic agricultural production. The main reason for this is that urban populations must be fed, and the domestic urban market normally provides the most lucrative market for small and medium-size farms. One study (Bose, 1978) found that in eight developing countries, no real wages in the private manufacturing sector rose without agricultural wages also rising. Another study of the effect of city growth on agriculture in Sub-Saharan Africa (Cour, 1988) concludes that constant urban growth is crucial to rural income and productivity gains. She found that farmers in this area actively respond to price signals and benefit from increases in urban domestic market demand.
These farmers, through a lag of 15 to 18 months, have met increased demand from food consumers so long as such demand was expressed through free price mechanisms.She also found that in countries that have experienced rapid urbanization, food productivity was significantly higher and increased at a faster rate. Her evidence for this was in the considerably larger food surpluses per farmer in West Africa compared to the food surpluses per farmer in East Africa, which is much less urbanized. Of course agriculture is not the only method of production in the rural labor market, but it is certainly one of the largest sectors. If the pattern of urban migration builds a larger cash market for agricultural products, than resources will improve in both regions, as opposed to the argument that urban growth comes at the expense of misallocation of resources in rural areas.
In conclusion, the positive effects on both the urban and rural labor markets that have resulted from urban migration will perpetuate such migration for many years to come. Cities in developing countries have two particular functions of whose importance cannot be overstated: they act as positive outlets for risk-takers in the private business sector, and they provide efficient systems of resource allocation that drastically increase the net productivity of the economy as a whole. The “urban pull” of workers due to such economic efficiency doesn’t serve to exacerbate resource misallocation in the rural regions, but in fact it creates greater market demand for rural production as seen in the case of the agricultural sector.
1. Peterson, George E. Urban Economics and National Development. USAID, Washington, DC. 1991.
2. Williamson, Jeffrey G. The Macroeconomic Dimensions of City Growth in Developing Countries: Past, Present, and Future. Boston, 1992.