DEVELOPMENT PROJECT

URBANIZATION
Urbanization is an index of transformation from traditional rural economies to modern industrial one. It is progressive concentration of population in urban unit. The traditional sector is viewed as a supplier of labor, whereas the modern sector is supposed to soak up its supply. Supply can’t be immediately soaked up because of the limited supply of capital.
The Lewis model states that there is a surplus of labor in the traditional sector and labor is subject to diminishing returns and output is stagnant after a certain point. This sector is characterized by income sharing and disguised unemployment. Economic development proceeds by the transfer of labor from agriculture to industry and the simultaneous transfer of surplus food-grain production, which sustains part of the population engaged in nonagricultural activity. In the surplus labor phase, removal of labor from agriculture doesn’t affect the output or the wages. Industrial production expands without rise in industrial wage. But the increasing fall in supply of labor drives up the agricultural wages, also it reduces the output. To compensate these losses, the industrial wages have to increase.
Labor moves from one sector to another on its own wishes. Classic theory of rural-urban migration is based on Harris-Todaro model. Migration in the Harris-Todaro model is viewed as a response to the sufficient wage gap that prevails between the two sectors. Not everyone can be absorbed in the formal sector at these high wages and the unlucky ones land up in the urban informal sector for meager sustenance. The decision to migrate is based on the comparison between the expected income from migration and the actual income from agriculture.
The underemployed and unemployed in rural areas flock to the cities because of the expected high wages in search of opportunities and add to the growing pool of paid unskilled labor in the informal sector. The uncontrolled migration of labor to already crowded cities and towns has led to the proliferation of slums. Rapid urbanization in developing nations leads to creation of slums; drop in living standards in urban areas and causes serious environmental damage. These industrializing countries cannot adapt to the influx of rural immigrants, and if left untreated, uncontrolled urbanization will not only slow the city’s development but also the nation’s ability to modernize. Urbanization in India has been very rapid and has occurred due to the rural push rather than the urban pull. The country does not have a strong economic base or the infrastructure to sustain this huge migration from rural to urban areas. This leads to congestion in urban areas and a rise in urban poverty.
Government policy should be based at getting as close as possible to the efficient allocation of resources and increasing national product. If government gives setup incentives to businesses then, in the short run, it will decrease the size of informal sector as the major supply of labor will come from this sector. But in the long run due to rise in the expected urban wage, migration will increase from rural to urban areas. With time the expected urban wage falls and the climbing agricultural wage reach equilibrium. This policy increases the size of the formal sector, as well as the size of the urban informal sector, leading to the paradox of urban job creation.
Restricting migration helps in getting rid of the informal sector, but it can’t lead to efficient allocation as the number of people in the urban sector will be too less as compared to the equilibrium demand. Opposite happens when Government provides a subsidy to the formal sector for every labor recruited into the workforce. These two policies can be combined in a way such that the subsidy creates a hike in demand in the formal sector till the equilibrium level and then migration is restricted to keep the rest of the labor force in agriculture. Another policy is to give a uniform subsidy to both agricultural and industrial sector. In this policy agricultural wages rise to reach the level of industrial wages and efficient allocation is reached.
Government Policy must limit urban migrations by supporting family farms. They must standardize the admittance of people into urban areas, ensuring that all who do move to a city is housed in safe, legally sanctioned buildings. Policymakers should adopt a city-wide view that looks at the overall economic, environmental and social health of the city. A stronger economic base should be created, so that migration occurs because of urban demand and not agricultural push. By regulating the pace at which a nation urbanizes, we can encourage development while limiting its negative side effects.