A conference co-hosted by the IGC and the Stanford Center for International Development yielded multiple insights on the potential benefits of migration to cities for generating economic growth in developing countries. Reducing transport costs through transport subsidies and better roads allows people to work urban jobs with higher wages

Jinhage, Amanda

LSE Research Online

2017­6­19 Rural­to­urban migration: Improving labour market prospects ­ IGChttp://www.theigc.org/blog/rural­to­urban­migration­improving­labour­market­prospects/ 1/4Authors Amanda JinhagePolicy EconomistIGC London Hub,Research Programme,ResearcherPublished on: 16 Nov 2016Countries: InternationalResearch themes: Cities Rural-to-urban migration:Improving labour marketprospectsA conference co-hosted by the IGC and theStanford Center for International Developmentyielded multiple insights on the potentialbeneﬁts of migration to cities for generatingeconomic growth in developing countries.Reducing transport costs through transportsubsidies and better roads allows people towork urban jobs with higher wages.Leading researchers gathered to contribute findings on firms,trade, and development at Stanford University in earlyNovember 2016. The conference covered such as themeasurement of productivity, the effects of integrating suppliersin fishmeal manufacturing, and the potential for increaseddomestic demand for drugs to increase their export potential.Sunset on a rising city: Addis AbabaImage Credit: Jean RebifféA recurring topic was urban-to-rural migration and its links tochanging labour markets. The movement of labour from ruralto urban areas has long been an integral part of theories of“structural transformation”: the movement of economic activityamong sectors, particularly from agriculture to manufacturing.As people move from agricultural work to higher-productivityjobs in cities, countries can undergo an importanttransformation that may increase not only workers’ wages butalso the country’s economic growth as a whole. However, manyquestions remain about the effects of such rural-urbanmigration and how workers can be incentivised to move. Ifwages are so much higher in cities, as documented by large2017­6­19 Rural­to­urban migration: Improving labour market prospects ­ IGChttp://www.theigc.org/blog/rural­to­urban­migration­improving­labour­market­prospects/ 2/4“wages are so much higher in cities, as documented by largerural-urban productivity gaps in virtually every country, thenwhy do people still live in rural areas, and what could increasetheir chances of finding urban jobs?The following three studies presented at the conference explorethese rural-urban linkages and present key ideas on therelationship between migration and structural transformation1. Migration begets migration and improves both rural andurban wagesMushfiq Mobarak presented the effects of rural-urbanmigration on rural labour markets in Bangladesh in his recentpaper with Agha Ali Akram and Shyamal Chowdhury. Inparticular, they study how seasonal rural-urban migrationaffects the broader rural economy through a large-scalerandomised control trial. By offering to subsidise transportationcosts for 5,792 potential seasonal migrants in Bangladesh tryingto escape the annual famine season, the authors identify theeffect of increasing the number of migrant workers on totalmigration numbers and income levels in rural villages. Theauthors randomly vary the proportion of migrating landlessagricultural workers across 133 villages in order to generatelabour supply shocks of different magnitudes in differentvillages. They then use this variation to document the generalequilibrium changes in wages and prices from significantlyscaling up the seasonal migration subsidy project Mobarakpiloted a few years ago. Effectively, these changes representhow the project affects villages in their entirety when the projectis rolled out on a large scale with high numbers of simultaneousmigrations per village.First, the authors find that a higher proportion of migrantsleaving rural villages during the famine season means that otherpeople in the village were more likely to migrate as well. Thissuggests that there are some benefits of coordinated travel,whereby migrants can share the cost of leaving the villagetemporarily. Second, they find a large increase in the incomeearned both at the destination and in the original village. Forevery 10% increase in rural-urban migration, male agriculturalwages increase by 2.8%. These findings suggest thatinterventions to incentivise people to move to cities temporarilyto get better paid jobs make sense when the poverty in the ruralvillages is chronic and seasonal.2. Improving roads facilitates uptake of more highly paidcity jobsSam Asher presented a new paper, co-authored with PaulNovosad, on the effect that new and improved rural roads haveon labour market outcomes in villages in India. Rural roads canhave significant impacts on villages in that they connect peopleliving there to important urban markets and workopportunities.The roads enable people previously working inagriculture to seek new and potentially more highly paidemployment outside their traditional sector. ”2017­6­19 Rural­to­urban migration: Improving labour market prospects ­ IGChttp://www.theigc.org/blog/rural­to­urban­migration­improving­labour­market­prospects/ 3/4”The authors therefore examine a comprehensive roadconstruction programme in India that has provided paved roadsto over 100,000 villages since 2000 to see how it affects peopleliving there. The programme was designed to build roads topreviously unconnected villages of more than 500,000inhabitants. By using this arbitrary population cut-off in theeligibility of the programme, Asher and Novosad are able tomeasure the effect of the programme on wages and changes inthe sectoral composition of labour.Building roads to previously unconnected villages leads to a 10percentage point reduction in the share of households andworkers in agriculture, with an equivalent increase inparticipation in the wage labour market. The roads enablepeople previously working in agriculture to seek new andpotentially more highly paid employment outside theirtraditional sector. This change in sectoral allocation of labour isstrongest with males and households with low levels of land,the demographic with the highest potential to benefit fromstructural transformation. Labour reallocation away fromagriculture is also strongest in locations close to major cities.The paper therefore shows that access to urban markets iscrucial to facilitating the process of structural transformationand that inadequate rural transportation infrastructure is amajor constraint on the sectoral allocation of labour in lowincome countries.3. Industrial parks in Ethiopia: spearheading the researchagendaSenior Economic Advisor at the UK’s Department forInternational Development (DFID) and Advisor to theEthiopian Investment Commission Matt Butler presented thenew push for industrialisation and structural transformation inEthiopia. Butler described the massive undertaking of buildingan industrial park employing 50,000 garment workers inHawassa, a town of initially only 250,000 people. Although thepark holds the promise of a large number of new, more highlypaid jobs for a population that is still overwhelmingly rural, thecreation of such parks also brings about challenges for labourmarkets and urban policy. The large expected influx ofmigrants from adjoining rural villages will have significanteffects on the city of Hawassa, putting pressure on existinginfrastructure and public services.Butler highlighted the need for more research on thesemigration issues and the labour market effects of industrialparks. He stressed the potential for collaboration with the IGCon researching industrial parks and suggested that data could bemade available on the roughly 25,000 workers involved in alabour sourcing and soft skills training programme in Hawassa.An enhanced research agenda on structural transformation andmigration issues around the opening of industrial parks couldbenefit not only Ethiopia at this critical point in its developmentbut also many other countries around Africa faced with similarpolicy challenges.Paving the way for new opportunitiesThe world is not a frictionless plane. When transport costs are2017­6­19 Rural­to­urban migration: Improving labour market prospects ­ IGChttp://www.theigc.org/blog/rural­to­urban­migration­improving­labour­market­prospects/ 4/4The world is not a frictionless plane. When transport costs areprohibitively high, they prevent people from accessingimportant markets and potential wage-enhancing opportunities.Subsidies for migration to cities can ease rural seasonal famines,and new roads from rural to urban areas can allow the uptakeof more highly paid jobs, whilst also raising rural incomes. Asin the case of industrial parks in Ethiopia, however, we mustremain aware of the fact that the benefits of urbanisation alsocome with costs, such as congestion and the exhaustion of localpublic resources.

Rural-to-urban migration: improving labour market prospects

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