Meeting the Challenges of Megacities in the Developing World A Collection of Working Papers (1996) / Chapter Skim
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Options for Improving Labor Markets for Megacities in the Developing World
Options for Improving Labor Markets for Megacities in the Developing World
Pages 1-34
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Options for Improving Labor Markets for Megacities in the Developing World A Working Paper Commission on Behavioral and Social Sciences and Education
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. PANEL ON IMPROVING LABOR MARKETS Members Harry Richardson, University of Southern California, Chair Jere R
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Yet most of the megacities share some key labor market characteristics: a formal manufacturing sector that is usually dwarfed (in employment terms) by the service sector; a large government sector, often riddled with inefficiencies; and an informal sector whose size depends on the level of economic development, business cycle influences, and the degree of government tolerance and support.
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, aggravate labor market distortions and impede adjustments. Deregulation of the labor market offers prospects for increasing its flexibility, especially by recognizing Mat policy interventions should work with rather than against market forces and should pay attention to the incentives driving the At the same time, improved access to credit markets for potential entrepreneurs, as well as to job information and to skills acquisition for potential employees, can help megacities, labor markets run more efficiently.
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The next two sections describe the labor force and He labor market, respectively, in developing-coutltry megacities.2 This is followed by a review of problems in developing-country megacity labor markets that may be amenable to policy intervention. Next is an examination of the role of policy In addressing these problems.
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sector, often global In scope. In addition, the informal sector represents a large share of employment, though typically not as large a share as In smaller cities; the manufacturing sector may be more or less important than In other cities, usually depending on the type of development strategy (e.g., import substitution or export orientation)
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. In these new world cities, the sectoral composition of the labor force may be quite different than In the traditional megacities (see the discussion in the next section)
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Sectors of Employment The Informal Sector Because of its size In low-income megacities, the informal sector plays a critical role in their economies. It is sometimes described as a residual sector -- unplying not a small spent of the labor force or a subsistence component, but rawer a large, unprotected sector 4
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For example, manufacturing accounts for only 15 percent of employment in Delhi and for less than 15 percent In Jakarta, while in the latter case one-fif~ of the employed population is own-account workers, and about one-half of the labor force is ~ the informal sector.
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Examples are informal sector construction workers, transportation operatives (120,000 bicycle rickshaw drivers in Dhaka and "phut-phut wallas"-~rivers of ~ree-wheel scooters -- m Delhi) , home-based auto repair shops, and comn~u~ty participation In public works projects.
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In addition, the female labor force participation rate was lower ~ locations where the manufacturing sector was more important, where male job opportunities were better, and where skilled jobs were more plentifi~l (women, mostly unskilled, were more likely to work in the informal sector)
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will increase by about I.2 billion between the mid-19SOs and the year 2020 (International Labour Organization, 19861. The total developing-country urban labor force should expand from 598 million in 1990 to 1,521 million In 2020, although much of this growth will take place In smaller urban places.
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The urban labor force is growing somewhat more rapidly, at 3.3 percent per annum, because of migration and the rise in the labor force participation rate (Yousry, 1995)
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. But such data tell us nothing about what is happening In the urban informal sector, which is often characterized by rapid growth and substantial wage levels (certainly overlapping the wage distribution In the formal sectors.
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The fact is that we know relatively little about how labor markets work or about employment and wage levels, especially at the megacity level. The source of information on these issues is usually survey data, but surveys are sparse, and their results are not always in the public domain.
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To illustrate, the labor force participation rate was much lower (53.6 vs. 63.8 percent in 1986)
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Job Mobility Constraints Various labor policies and practices result in severe constraints on job mobility. These policies and practices include job security, severance pay requirements, minimum wage policies, and housing allowances and other fringe benefits.
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; promoting productivity in both the urban formal and informal sectors; building up human capital; restricting interventions In the labor market to those serving an overriding public purpose In order not to erode the competitive position of develop~g-country megacities; and reducing unemployment. The Role for Government Goverrunents are most effective In unproving urban labor markets when they assume a modest (though important)
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Others (e.g., latoba, 1989) recommend a more sweeping menu of policies, including measures to support small-scale production; sponger enforcement of minimum wage laws; wage subsidies for particular groups; Interventions to prevent worker exploitation; better organization of the labor legislation concerning the right to strike, collective bargaining, entry into protected labor markets, and aid to the unemployed; and better labor market information.
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For example, ~ the 198Os real wages fell 1540 percent In Latin American counmes, with a few exceptions, such as Argentina. International Trade Policies This is a controversial issue.
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have found that more education has externalities that include facilitating the spread of knowledge about new production techniques and new markets. Also, Here is evidence of positive rates of return to education even In the informal sector (Cohen and House, 19951.
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Minimum wage legislation has no impact on wage levels of Me unprotected informal sector Mat dominates ~ncome-generat~ng activities In the megacities of low-~ncome countnes. Conversely, Me n~iT~iTnum wages are often Relevant to privileged formal sector workers who earn much more.
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Not only do they create ~ncome-generat~ng activities for low-income populations, but Hey also open up opportunities for upward mobility, given the significant overlap In the wage distributions of formal and informal sector work. Policies to Eliminate Job Mobility Constraints Labor Unions Labor unions In developing countries vary widely In bargaining power and impact.
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Rural development strategies have done little to relieve megacity labor force growth, although labor-intensive public works programs may have a modest but discernible effect. The slowdown In megacity grown, where it has occurred, has been largely a natural consequence of declining nations population growth rates and has had little to do win spatial redistribution.
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In general, We rural and informal sectors have received little protection from health and safety standards. Also, Were are enforcement problems ir the formal sector, especially with respect to small firms.
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BromIey (1993:133) argues that the former course is insufficient, while me latter is costly and difficult to implements "The crucial issues are how to generate a macroeconomic and macropolitical climate favorable to We growth of small enterpnses; how to ensure sustained and consistent application of government promotion policies; how to encourage simple, easily replicable pilot programs; and how to encourage the diffusion of successful innovations among small enterprises." Measures to facilitate on-thejob apprenticeships in the informal sector are cost-effective (Cohen and House, 19951.
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Productivity would be improved, perhaps dramatically, by policy reforms in several areas, including macroeconomic stability, open international markets, informal sector promotion, and labor policy reforms. The informal sector is also important from the point of view of poverty alleviation, as is eluninat~ng barriers to female employment (e.g., offering more flexible working hours or providing community-based child care)
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I] IE ROLE OF SCONCE AND TECHNOLOGY How can megacity labor markets benefit from rapidly changing technology?
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by the service sector; a large government sector, often riddled with inefficiencies; arid an informal sector whose size depends on Me level of economic development, business cycle influences, and Me degree of government tolerance and support. Moreover, almost all megacities have been impacted substantially by globalization and the opening up of world markets; these trends have accelerated the need for increasingly flexible labor markets.
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Many developing countries have labor policies In place (such as minimum wage laws, job security provisions, job-related housing provision, pension systems, and centralized -- often governmentcontrolled -- labor unions) ~at, when enforced (often they are not)
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Nevertheless, "the basic distinction [between the formal and the informal sectors] ...turns on the idea Eat employment In He formal sector is In some sense or senses 'protected' so that wage levels and working conditions in the sector are not available, in general, to job seekers unless they manage somehow to cross the protective barrier.
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investment. The private rate of return to education equals the lateral rate of return that equalizes the discounted present value of the private costs of attending school -- ~ncluding all private outlays for school fees, books, uniforms, and other school matenals and Me opportunity cost of lost earnings while attending school -- and the discounted present value of the higher earnings that the individual enjoys In subsequent years apon completion of his/her education (Schultz, 19931.
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