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close this book The Courier N°131 Jan-Feb 1992 Dossier The urban crisis- Country Report: Dominican Republic
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Population growth, employment and poverty in Third World mega-cities

by A.S. OBERAI

Rapid urbanization, and particularly the growth of large cities, sod the associated problems of urban slums, degraded environment, inadequate health services unemployment and poverty have emerged as major socio-economic issues with potentially important political implications in many developing countries. By the year 2000, nearly 45% of the 5.1 billion population of the developing countries will be living in urban areas and more than 49 Third World cities are expected to have a population of over 4 million (United Nations, 1991). In Africa, only a small proportion of the urban population (9 per cent) currently live in large cities with a population of more than 4 million, but by the year 2025 it could have the high at percentage (33 per cent) of all continents. Most population distribution policies designed to moderate the rate of rural urban migration appear to have had limited success so far. But: even if such polices do succeed in future, large cities are likely to grow larger because of the high rate of natural population increase in urban areas. In 1980, of the 20 largest cities in the world, 13 were in the less developed regions. By the year 2000, 17 of the 20 largest cities will be in the less developed countries, and of the 7 super cities with a population of 15 million or more, 5 will be in developing countries; 2 in Latin America (Mexico and Sao Paulo) will have a population of over 22 million.

The implications of these demographic trends for employment creation, provision of food and housing, social services and protection of the urban environment are staggering. In many Third World cities, nearly half of the population is living in slum and squatter settlements (Table 1). More than one-quarter of the inhabitants in most large cities are estimated to be living in absolute poverty. Public investment often misses the urban poor, with expenditures biased towards the higher-income groups. Lack of access to social services suchs education and health leads to higher fertility accompanied by high infant mortality amongst the urban poor, particularly amongst the slum dwellers.

Yet despite these enormous problems, it would be wrong to regard urbanisation in the Third World in entirely negative terms. The large cities often make a disproportionate contribution to GDP in tbese countries because they enjoy economies of scale and consequent higher income and productivity per capita compared to the rest of the economy. For example, in Mexico in 1980, 20.8% of the nation's population lived in Mexico City, but it generated 34.3 % of Mexico's GDP. Rio de Janeiro accounted for 4.1% of Brazil's population in 1987 and 10.6% of the nation's GDP.

Notwithstanding the relatively higher productivity levels in urban areas, urban poverty is a pervasive phenomenon iii most Third World countries. The number of urban households living in absolute poverty in developing countries is projected to increase from 40 million in 1980 to 72 million by the year 2000, and that of poor rural households to fall from 80 million to 56 million during the same period (Human Development Report, 1990). An increasing number of urban poor in mega-cities are unable to pay for social services a fact which constrains the ability of municipal governments to invest in infrastructure. Lack of adequate infrastructure (electricity, telecommunications, water supply, urban transport etc.) creates bottlenecks for economic expansion. A recent study shows that as much as 10-35% of the initial capital investment in manufacturing plant in Nigeria is made solely to compensate for -inadequate supply of power and water in cities (World Bank, 1991). Longer travel time from home to workplace, costly transport of goods, uncertain delivery of inputs, lower productivity, higher production costs, lack of basic welfare education, child care, health services) and environmental decay in addition to water arid power shortages are among the limiting factors on economic efficiency and human resource development.


Table 1: Percentage of population living in slums and informal settlements in selected cities

During the world economic crisis of the 1980s, urban economies in the developing countries suffered relatively more than the rural economies. As a direct consequence of the world economic slow down (leading to catastrophic falls in commodity prices, rises in interest rates, reduced demand for developing countries products and reduced capital flows) a very large number of developing coun tries have become severely constrained by their balance of payments. This has led a majority of countries, particularly in Africa and Latin America, to seek rescheduling of their debts and to accept IMF conditionality. The latter has often involved measures (large devaluations, cuts in public expenditure, etc.) which had a greater impact on poverty, employment and social services in the urban areas than in rural areas. In sub-Saharan Africa, for example, where the 'urban bias' was conspicuous during the 1960s and 1970s, recent stabilization and adjustment efforts have largely corrected the policy imbalances but the impact on urban incomes has often been dramatic: in Tanzania, farm incomes rose by 5% between 1980 and 1984 while urban wage earners faced a decline of 50 %; in Ghana, farm incomes stagnated but urban incomes fell by 40% during the same period; in Côte d'Ivoire, the ratio of urban to rural incomes fell from 3.5:1 in 1980 to about 2:1 in 1985 (World Bank, 1991).


Table2: Growth of enumerated non-agricultural employment and real wages in selected African countries(percentage per annum)


Table 3: Urban informal sector employment in sub-Saharan Africa (millions)

While the economic crisis of the 1980s has adversely affected the demand for labour in many urban areas, particularly in Africa and Latin America, the supply of labour to such areas has been increasing partly due to migration from the rural areas. But how does the urban labour market adjust to the substantial and growing imbalances in labour demand and supply ? The adjustment can take five principal forms. These are: (i) a reduction in rural-urban migration; (ii) a rise in open unemployment; (iii) a decline or stagnation in formal sector employment; (iv) a fall in formal sector wages; and (v) an expansion of informal sector employment accompanied by a decline in wages and earnings. A recent study of several African countries based on data on growth in the non-agricultural labour force during the periods 1970-80 and 1980-85 concludes:

'There has been a steady deterioration in the employment situation in most sub-Saharan African countries in the seventies with a marked accentuation in the eighties. This is the result of a continuing deceleration in economic growth accompanied by a rise in the growth of labour supply.

The brunt of the crisis had to be borne by the urban sector. A reduction in rural-urban migration and a rise in open unemployment have been of limited importance in most countries as means of adjustment to the pressures in the urban labour markets. The predominant way in which the labour markets have adjusted to the economic crisis of the past decade has been through sharp reductions in real wages which have helped sustain employment in the formal sector and a rapid expansion of the informal sector with falling real wages and earnings, resulting in work sharing and increasing underemployment' (Ghai 1987, see Table 2).

When the employment-generating capacity of the formal sector lags behind the growth of the urban labour force, the informal sector becomes overburdened with the excess labour supply. The concentration of employment in low productivity activities or marginal jobs leads to increased dualism, as has happened in several Latin American and African countries during the recent economic crisis.

In sub-Saharan Africa, informal sector employment has increased by 6.7% per annum between 1980 and 1985, which is higher than the urban labour force growth (5.3%) and growth of modern sector employment (1%) (Table 3).

Some studies argue that labour market segmentation keeps the urban poor locked within a 'poverty trap'. But the empirical basis for this view is still very flimsy. Poverty, and precarious and poorly paid work certainly exist, but it is by no means clear that it is the structure of labour markets as opposed to overall development and employment policies that are mainly at fault. A recent UNICEF (1987) study shows that in countries where GDP per capita fell, unemployment rose, real wages fell and poverty increased. The UNICEF study also found that, on average, countries which had cut expenditure on health and education were experiencing worse economic conditions (as measured by decline in GDP per capita) than those which increased social sector expenditures. It may therefore be argued that it is the pace and pattern of economic growth rather than labour market interventions will have the largest potential impact on poverty alleviation.

Increasing urban poverty associated with the growth of informal sector activities and the formation of slums must not be seen merely as two unrelated phenomena which happen to exist simultaneously; rather, the former is to be causally linked to the latter. The low levels of income accruing to workers in the informal sector do not enable them to face the challenges of urban life in general and the high cost of living in particular. In large cities, where there is not enough scope for geographical expansion in the face of high population density, land scarcity leads to high land prices and speculation. In such situations, the dualistic economic structure of the cities in terms of employment further accentuates the level of inequality by limiting the access of informal sector workers, particularly migrant workers, to housing and land. This therefore leads to the formation and growth of slums and squatter settlements in the large cities.

Urban poor people also usually have limited access to social services such as education, health, nutrition and family planning as noted earlier. They are thus often trapped in a vicious circle in which low incomes ensure poor education, nutrition and health, which in turn lead to low productivity and incomes. The main policy question is therefore how to help the poor to break the vicious circle of poverty.

Where the city authorities can paticularly make a much more direct and important contribution to alleviating urban poverty is in relation to policies towards improving the quality and productivity of the labour force by increasing access of the urban poor to social services. Even within existing budgets, redirection of city services towards the poor should help to increase their productivity and incomes. The rationale behind such a policy is not only an ethical one - that is, the alleviation of poverty - but also one of efficiency.

Concluding remarks

Since the alarming growth of the urban population is to a considerable extent attributed to mass migration of rural residents, efforts should be made to discourage such migration. This can be achieved only through more balanced and effective development of the rural areas, to provide adequate employment opportunities and other amenities for the rural population. Regularisation of land ownership claims, land reform, policies facilitating access to credits, new technology and other needed input', and output price policies geared to the needs of smallholders should be of great help in absorbing rural labour, reducing migration to the cities and achieving rural development goals. Particular emphasis should be given to combining rural development strategies with policies de, signed to promote the growth of small towns and other urban centres. These urban centres should become vigorous points of interaction with rural economic growth, through activities such as agroprocessing, small-scale industry, marketing facilities for rural products and agricultural extension services.

Measures to reduce growth of large cities should not include direct controls on in-migration, which infringe upon human rights and are difficult to enforce. A more practical strategy would be to eliminate price distortions that favour big cities such as heavily subsidised urban services, to promote investments in infrastructure of small urban centres and in rural development while providing opportunities and incentives for people to move to or remain in desired areas. While government policies have to focus on reducing the flow of migration to large cities, there is also an urgent need for something to be done about the deteriorating amployment and living conditions in large cities. Postponing action will only accentuate misery and poverty m such cities.

Indeed, public policies should involve & three pronged development strategy to tackle the problems of metropolitan and small urban centres side by side with rural developlment. What is needed i. a programme of balanced development, aimed at encouraging settlement in small and intermediate cities and at the economic development of rural areas, while at the same time improving employment and living conditions in large cities. These goals are attainable provided population distribution policy is included as an essential component of overall national development strategy, linked and harmonised with policies on industrialisation, agriculture and social welfare.

Greater emphasis also needs to be placed on the importance of bringing down birth rates in order to slow down population growth in general, and urban natural growth in particular. As already discussed, an important reason for the high fertility amongst the urban poor, particularly amongst the slum dwellers, is their limited access to education, health and family planning services. Most slum dwellers have limited access to social services because of their low productivity and incomes. Thus, improving the access of urban poor to employment opportunities and social services and raising their productivity and incomes are more likely to bring down population pressure in large c ties.

Coping with employment and poverty problems in large cities is thus the major challenge facing the developing countries. There is an urgent need to examine the scope and adequacy of current policies relating to employment promotion particularly in the informal sector; promotion of small-scale industry; employment generation through investments in housing and community infrastructure for the poor; and improvements in productivity and working conditions of vulnerable groups in the urban labour market. Particular attention will need to be paid to the question of adequacy of the existing institutional structure for dealing with employment and poverty problems at the city level. In most developing countries, city authorities are primarily oriented towards the provision and maintenance of urban infrastructure and services. They have little interest in, and no capacity to deal with, social and economic issues such as the promotion of employment and the alleviation of poverty. Unless this situation is changed, it will be virtually impossible to think of any viable way of initiating and implementing comprehensive anti-poverty programmes in the Third World cities. The solution to the problems of employment and urban poverty cannot be found in an institutional vacuum.

A.S.O.