Rural to urban migration

There’s much talk about open borders, but few people talk about within-country migration.

Historically, almost all non-poor countries have grown their economies in three steps ^[1],^[2]:

1. Rural to urban migration: Unskilled (subsistence) farmers migrate to cities and start working in factories. Over night, this increases their productivity many times over.
2. Manufacturing absorbs vast amounts of unskilled labor: These workers need very little human capital: they do not need to be educated because work in factories is very simple. Poor population health does not prevent growth either, because there are enough people to replace sick workers.
3. Manufacturing exports niche products to the world market: The factories find their niche product (e.g. initially often garments) and export to the world market, which can absorb large amounts of the same good (e.g. billions of shoes)

Increased incomes are invested into education of children, and the economy can transition to high productivity manufacturing (e.g. automotive industry, chemicals, where workers need education) and finally to services.

At every step, policy interventions could intervene and thus speed up growth. For instance, reducing within-country restrictions on rural to urban migration, might cause farmers to become factory workers in manufacturing.

• A UN study found that 80% of countries had policies to reduce rural-urban migration (up from only 38% in 1996). It is also more pronounced in poorer countries: 88% of the least developed countries reported policies to reduce migration to urban areas. Rural to urban migration is a crucial part in economic development for any country in human history. Some studies run simulation that suggest that “across the period 2011–22, if the labor participation rate of the non-agricultural sector increases by 1 percent per year, China will increase its potential growth rate by 0.88 percent (Cai and Lu 2013). [and] the most important measures to improve labor force participation include reform of the household registration system and improvements in urban public goods and services, both of which would help to stabilize and expand the employment of migrant workers in the urban economy and non-agricultural industries. [...] Traditional factor-driven growth can still contribute if reform increases labor force participation, most significantly through easing restrictions on rural–urban migration through reform of the household registration system and other means.” [Study]  One could fund more research on this topic or fund Fei-ling Wang, who advocates for incremental reform in China and might be willing to convene a conference on lessons for other countries. More on this topic.
• Internal migration generates big welfare gains in #Uganda, with even larger effects for moves to urban areas #IV (Mensah & O’Sullivan)^[3] ”Moving to a rural destination yields welfare returns of 56 percentage points, while the returns to urban moves, at 65 percentage points, are markedly higher. Policies to capture the welfare gains from migration to cities should focus on further urbanization, the development of road infrastructure, and investments in education for men and women in rural areas.  “
• “The working-age population (15–59 years) is now decreasing. The only way to increase the potential supply of labour is to increase the labour participation rate. Simulation shows that across the period 2011–22, if the labour participation rate of the non-agricultural sector increases by 1 per cent per year, China will increase its potential growth rate by 0.88 per cent (Cai and Lu 2013). The most important measures to improve labour force participation include reform of the household registration system and improvements in urban public goods and services, both of which would help to stabilise and expand the employment of migrant workers in the urban economy and non-agricultural industries.” ^[4]
• “Traditional factor-driven growth can still contribute if reform increases labour force participation, most significantly through easing restrictions on rural–urban migration through reform of the household registration system and other means.”
• Fei-ling Wang, a professor at Georgia Tech and author of Organisation Through Division and Exclusion: China's Hukou System, said: "The system is simply too important to get rid of: it helps the government to rule." He said even incremental reform was good news, noting that specific details in the document – such as limits on how long governments can require social welfare contributions from migrants before granting them a hukou – should help workers.

• Rich countries increased their temporary migrant worker stocks by an amount equal to just 3% of their labor forces, global income would increase $150 billion, with most of that accruing to the temporary workers themselves. Complete liberalization could generate vastly larger gains for temporary workers.^[5] 

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Notes

[1] "Structural Change, Fundamentals, and Growth: A Framework ...." 14 Apr. 2017, Structural Change, Fundamentals, and Growth: A Framework and Case Studies. Accessed 6 Nov. 2019.

[2] "The Recent Growth Boom in Developing Economies: A ...." 30 Aug. 2019, The Recent Growth Boom in Developing Economies: A Structural-Change Perspective. Accessed 6 Nov. 2019.

[3] "Panel Data Evidence on Migration and Poverty in ... - Editorial Express." https://editorialexpress.com/cgi-bin/conference/download.cgi?db_name=CSAE2016&paper_id=1000. Accessed 6 Nov. 2018.

[4] "Structural Reform for Economic Growth - Wiley Online Library." https://onlinelibrary.wiley.com/doi/abs/10.1111/1467-8462.12248. Accessed 4 Nov. 2019.

[5] "Relaxing the Restrictions on the Temporary Movements of ...." https://www.researchgate.net/publication/4754247_Relaxing_the_Restrictions_on_the_Temporary_Movements_of_Natural_Persons_A_Simulation_Analysis. Accessed 4 Nov. 2019.