Can urban growth reduce rural underemployment?

In a recent IFPRI working paper, Van Cappellen and De Weerdt (2023), we show how urban growth reduces underemployment in the rural hinterlands of towns and cities. But leveraging these labor market linkages between urban and rural areas for inclusive growth and poverty reduction will depend on overcoming two barriers. The first is that the jobs created are primarily low-skill, low productivity, and often casual (ganyu). Raising the human capital and productivity of the continually growing pool of rural workers, while simultaneously raising rural incomes to increase demand for the kind of off-farm goods and services they can provide, will be critical. Secondly, the labor market linkages between urban and rural areas operate primarily through the longer-established urban areas. Growth in Malawi’s newer emerging urban centers, while substantial, has not spilled over to rural labor markets yet. This is a missed opportunity and highlights the need for a geographically expansive urban investment strategy that includes fostering growth, agglomeration economies, and strong urban-rural linkages in Malawi’s smaller urban areas. Anchoring the development of smaller urban agglomerations in modernizing value chains, particularly in the agri-food sector, is one practical pathway for leveraging urbanization for inclusive development

Rural underemployment and urbanization: Insights from a nine year household panel survey from Malawi

Rural labor markets in Africa are frequently characterized by underemployment, with farmers unable to fully deploy throughout the year one of their most important assets—their labor. Using a nine-year panel data set on 1,407 working-age adults from rural Malawi, we document changes in rural underemployment over this period and how they are associated with urbanization. Nearby urban growth results in increased hours worked in casual labor (ganyu) and in non-agricultural sectors, at the expense of work on the household farm. Improved urban access is also associated with a small increase in wage labor and, at the intensive mar gin, with hours supplied in household enterprises. We draw lessons from these results for policies, investments, and interventions to leverage urban growth for rural development