Re-examining the Link Between Urbanization, Jobs and Economic Growth

This piece is part of an “Urbanization and Jobs” series hosted on the JustJobs blog.

Economists and policymakers have long assumed urbanization to be a spatial consequence of industrialization, economic growth, and job creation.

But mounting evidence tells us that this may not be true. The relationship between urbanization and economic growth may actually be tenuous, and the relationship with formal economy job creation even more so. The latest evidence comes from Africa’s Urban Revolution, a groundbreaking new volume, nicely synthesized by Kerwin Datu of The Global Urbanist.

Increasing demand for labor in cities to fill manufacturing jobs can be a driver of urbanization, but it isn’t a precondition, as Sean Fox’s chapter in the new volume demonstrates. He shows how demographic changes alone, like declining mortality rates, combined with increasing agricultural productivity can lead to rural-urban migration and the expansion of cities.

This is particularly true of newly urban and rapidly urbanizing regions of Sub-Saharan Africa and South Asia. For example, India – whose pace of industrialization has been sluggish at best – has witnessed its urban population climb unabated, albeit at a slower rate than many of its Asian peers.

Ghana, one of Africa’s success stories, has also seen similar trends. The contribution of manufacturing to Ghana’s Gross Domestic Product (GDP) has faltered and in 2014 stood at only six percent. Meanwhile, the country has urbanized rapidly, and now more than half of Ghanaians live in urban areas.

The image of labor-hungry factories pulling migrants off their farms and into the cities may be antiquated.

This is a very different urbanization story than the one that unfolded in Europe and North America, where the industrial revolution facilitated the transformation of those societies from rural to urban.

One might conclude that India and Ghana have experienced urbanization led by their service sectors rather than manufacturing – which is true. But the workers migrating to cities in India and Ghana mostly end up in low-value-added, low-paying, service sector jobs – not in information technology or financial services. After all, the vast majority of workers still labor in the informal economy – 80 percent in Ghana and 86 percent in India.

So what’s at stake here? Urbanization that isn’t driven by the expansion of formal economy employment runs a high risk of being a dis-equalizing force.

Not only do the urban workers of today’s global South earn less than they might in factory floor jobs, they also lack the capacity to organize themselves, create successful labor movements, and negotiate for higher wages and better working conditions. In the industrialized world, the creation of strong labor movements coincided with the cementing of stable, successful, and relatively egalitarian democracies.

The Great Recession was a wake-up call: policymakers realized the need to study not only GDP growth rates but also the composition of growth. It’s time for a similar shift in the way we think about cities. Urbanization is not a simple proxy for growth, modernization, and more opportunity. We must understand how and why cities are growing, and what jobs they are and aren’t creating.