URBAN LIVELIHOODS AND LABOR MARKETS

ARJAN DE HAAN

Arjan de Haan ([email protected]) is social development adviser in the Department for International Development (DFID), United Kingdom. Opinions expressed here are personal and do not necessarily reflect DFID policies.

The quality of work opportunities - low wages, precarious working conditions, and insecure job tenure - is a crucial constraint to improving the livelihoods of the urban poor, especially since labor is poor people’s greatest asset. As urbanization proceeds in the coming decades and continues to provide opportunities for residents of as well as migrants to urban areas, the labor market increasingly becomes a key determinant of wealth and poverty. If policymakers do not address labor market issues, urbanization may intensify poverty in cities and shift the primary location of destitution from rural to urban areas.

URBAN EMPLOYMENT TRANSITION

Urbanization implies a transition from agricultural to industrial employment and, particularly, to service-sector jobs. According to International Labour Organization (ILO) estimates, the share of industrial employment in developing countries rose only from 11 to 14 percent between 1965 and 1990 (and only from 8 to 9 percent in Sub-Saharan Africa), while service-sector employment increased from 17 to 25 percent (13 to 24 percent in Sub-Saharan Africa). With urbanization, cities also account for an increasing share of national income. Urban areas now generate 55 percent of gross national product in low-income countries - although the urban population share is much lower - and 85 percent in high-income countries.

Dynamic cities represent engines of economic growth. They bring benefits through economies of scale and the higher productivity of many urban economic activities. Urban incidences of poverty tend to be lower than rural ones precisely because expanding urban economies offer significant employment opportunities. However, the contribution of urbanization to improving the livelihoods of poor people in urban and rural areas is more modest than these positive outcomes may suggest, for the following reasons:

· Urban growth is often supported by government bias against rural and in favor of urban areas when allocating investment funds.

· A nation’s overall poverty level may be reduced much more by rural development than by urban growth, especially in highly rural regions such as Asia and Africa.

· Often the poorest people from rural areas are not able to migrate to cities because of the financial investment and networks that migration usually requires.

· Many urban workers are badly paid, have insecure employment, or are overworked.

DIVERSITY, FLEXIBILITY, AND INSECURITY IN URBAN EMPLOYMENT

During the 1950s and 1960s, many experts expected that urbanization in developing countries would be accompanied by growth of a modern industrial sector that would provide permanent, protected employment. Instead, large numbers of urban inhabitants ended up working in the informal sector. In developing-country cities most people, particularly women, worked outside large, modern enterprises. Many of these jobs were insecure and did not pay well. With economic crises and adjustments during the 1980s and 1990s, the percentage of people working in this urban informal sector increased.

Jobs in urban areas show great diversity - from regular, secure government jobs; to well-paid independent jobs; to skilled, manual jobs in large-scale industries (with or without security of tenure); to visible kinds of “informal” jobs. The last category is extremely heterogeneous, including relatively better-off taxi drivers and market vendors as well as rickshaw pullers, beggars, prostitutes, and others. Many urban occupations are also marked by seasonal variations in availability of work.

Moreover, job characteristics are linked to social differentiation. People of particular groups, ethnicity, castes, gender, or age often find employment only in particular segments of the labor market. Although women’s role in the labor market is changing with urbanization, women’s work is concentrated in a limited number of sectors. During the last three to four decades the global female labor force expanded nearly twice as much as men’s, but women still tend to be overrepresented in less-secure and irregular jobs. Even when they work in the same types of jobs or sectors as men, they get paid less than men. When countries experience economic crises, the burden tends to fall heaviest on urban women, who must continue to work and devise innovative coping strategies to care for other members of the household.

The complexity of urban labor markets is augmented by the fact that people usually derive incomes from various sectors. Members of a household often work in different occupations and sectors. People in secure jobs whose pay has eroded with inflation may take up extra jobs, such as vending or driving a taxi. In many cases, urban households cross rural-urban boundaries, with their rural base continuing to function as a social and economic safety net. Urban workers often return to their villages when they lose their jobs during crises.

Some urban dwellers maintain ties to the land in another way, through urban agricultural production that provides income and improves nutrition for as much as 40 to 50 percent of the African and Latin American urban population. This extra food and income is important for lower-income groups, particularly women, and often serves as a means of coping with increases in urban poverty, higher food prices, or food shortages.

TRENDS IN URBAN LABOR MARKETS

The general tendency globally is toward more flexible labor markets, with less employment security and more differentiation among types of jobs. In Africa, Asia, and Latin America, flexibility in employment has been reinforced by economic stagnation since the 1980s and continuing policies of liberalization. The fall of communism also has led to more diverse forms of employment, away from state-guaranteed work.

· In China state enterprises have been dismantled, employment security has declined, and a huge urban “floating population” of migrants - with the least security - has rapidly emerged.

· The East Asian miracle itself was based on flexible labor markets, with large companies employing a core group of workers and using subcontractors to employ large numbers of additional workers, with little employment protection.

· In India growth of modern employment stagnated even in the 1980s, and - as in East Asia - large numbers of laborers worked for subcontractors, often in appalling conditions.

· In Africa, with the lowest levels of urbanization and continued economic crisis, flexible forms of labor have remained the norm.

· Latin America urbanized and industrialized early, and here flexible employment perhaps has been most prominent. Trends in wages have also been diverse. For example, positive trends in employment in Chile and Indonesia were accompanied by declines in real manufacturing wages. Within Asia some countries have experienced increases in wages, while in most non-Asian countries and some industrialized countries, real industrial wages have declined in recent years.

THE CHALLENGE OF GLOBALIZATION

Urbanization is increasingly accompanied by globalization through trade and financial liberalization, both of which reinforce the importance of cities and economies of scale. Urban labor markets in 2020 are likely to become even more competitive and flexible. To take advantage of open, expanded, but highly competitive markets, governments need to react rapidly to demands imposed by a global labor market and now rely less on inward-oriented development policies.

Highly diverse urban labor markets are here to stay. Rewards from these markets will differ dramatically, depending on each economy’s ability to respond to and take advantage of global markets. Inequality is already quite pronounced in urban areas - and between urban and rural areas - and may become even more pronounced. Therefore, public policies that support urban labor will be needed to reduce the tensions that may arise from globalization and to ensure equitable access to rewarding labor markets, especially for the poor.

POLICY RESPONSES

Many policymakers have indicated a desire to reduce rates of urbanization, but this is not a reasonable strategy. Continued economic growth under open markets will remain the most likely development scenario, one that probably will not lead to de-urbanization.

Policies should focus on improving the effects of inevitable urbanization and migration, for example, by providing support to migrants rather than discriminating against them. Certainly in many countries rural development will remain crucial to reducing poverty and improving food security and nutrition, but this should not bar urban policies from supporting the livelihood strategies of both urban migrants and urban residents.

Macroeconomic policies have tended to assume that liberalization and deregulation would lead to economic growth and creation of employment. However, such policies by themselves may have only limited impact on poverty and may even have specific negative consequences for the urban poor. Macroeconomic policies need to be context-specific and sensitive to their effects on urban labor markets, especially on the conditions that need to be fulfilled to enable the urban poor to participate in the benefits of economic growth on an equitable basis.

Policymakers must also create targeted programs for the urban poor and food insecure. Up to now, urban policies, particularly those of donors, have tended to focus on issues of service delivery, shelter, and infrastructure. More thought needs to be given to employment-guarantee schemes in urban areas.

Macroeconomic policies and safety-net programs, however, are only part of the urban employment agenda. Policies need to pay more attention to enhancing productive employment for the urban poor - that is, ensuring employability of and equal opportunities for the urban poor in an increasingly competitive urban labor market. Policies should promote access of the poor to financial capital through microfinance schemes; build the capabilities of the urban poor through formal education and training so that they can secure high-quality employment; and take into account the heterogeneity of labor markets and fluctuating nature of labor supply and demand. Governments may also need to pursue special policies to reduce gender disparities and to break through the labor market segmentation that inhibits certain groups from taking up jobs in more rewarding activities.

For further reading see the International Labour Organization’s annual World Labour Report.