Muhammad Ali Jinnah University

Assignment# 4

Advance Development Economics

TOPIC:
Urbanisation

Submitted by: Sumair Gowani (SP19-MSEF-0015)

Submitted to: Sir Afaq Ali Khan
Ans 1:

Todaro Model of Rural-Urban Migration: This model explained that rural to urban
migration create high urban employment and migration decision is conducted base of
Expected income. The expected income is to be wage times the probability of
employment.

Essential Assumptions:
1. Model is based on the Economic Phenomenon of Migration.
2. This model only is applicable to highly advanced industrialization economies with
nearly full employment.
3. The model describes the worker’s migration decisions on the basis of wages and
probability of unemployment.
4. The model assumes that individual rational decisions of rural-urban migration are
dependent on job searching.
5. The model assumes that migration is to be on expected income rather than actual
income because migrant compares rural income with expected urban income.
6. Extension of industrial output creates urban jobs but it is insufficient to solving the
urban unemployment issues.
7. Government rural-urban migration promotion policy creates more urban
unemployment.
8. The model suggest that the Government should reduce urban wages, promotes
rural employment and labor-intensive technologies.

Major Features:
1. Migration decision is rationally related to financial and psychological costs and
benefits.
2. Migration’s expected benefits relate to the wage time probability of employment in
urban.
3. Probability of employment directly related to urban employment rate or inversely
related to the urban employment rate.
4. Excess Migration over job opportunity rate, high differentiation urban-rural
expected income, and imbalance of economic opportunities in rural areas is the
main reason for high urban unemployment rate.

Paradoxical Situation: Traditional Keynesian suggested that the government should

create more urban modern-sector jobs, which leads to higher urban unemployment levels
because of higher expected urban income over rural income and more employment
probabilities. It is called paradoxical situation. The model explained that without the
improvement of rural opportunities, the government cannot cope with the unemployment
rate in urban areas. Let suppose, if the government creates 1 more new job opportunity
in the urban area and urban income three times higher to rural income, so urban areas
face 3 more migrants from rural areas. Therefore, 2 more unemployed workers in urban
areas. It increases the urban unemployment rate. This situation, not only leads to a higher
unemployment rate in urban areas but also reduces the level of agricultural output due to
migration.
Ans 2:
First and foremost, it may be important to understand that the informal sector may be
considered as the part of the economy with jobs that are often not acknowledged as being
the conventional sources of income and often taxes are not paid from such sources.

The formal sector on the other hand can be considered as the part of the economy that
has jobs that have conventional sources of income, respects the standard working hours
and from which taxes are collected.

Some of the key positive aspects of the informal urban labor market include;

• Individuals in the informal market do not get to pay tax.

• It is less costly for the employer.
• Less working hours.
• It helps save time and resources.

Some of the negative aspects of the informal market include;

• There is no job security.

• The employee is not obligated to receive incentives.
• The employees would sometimes be required to work long hours.

Explanation:

Some of the distinguishing factors about the formal and the informal sector is that;

• The informal sector has low productive value, whilst the formal sector has high
productive value. This means that the informal sector tends to produce less
monetary output as compared to the formal sector.
• The informal sector lacks the ability to provide incentives, whilst the formal sector
has the ability to provide incentives. Incentives in this case could be; bonuses,
insurance covers etc.
• Jobs in the informal sector tend to lack security. Whilst jobs in the formal sector
tend to have job security. This means that individuals in the informal sector can
not seek solace or protection from labour unions because there is a high
probability that their jobs/professions are not recognized by the state.

Some of the key positive aspects of the informal urban labour market include;

• Individuals in the informal market do not get to pay tax. This means that you have
more disposable income that would increase one's level of consumption.
 • It is less costly for the employer. The reason for this is that the employers would
not be obligated to pay recruitment fees, since recruitment can take place on the
spot. Employers would also not be obligated to pay bonuses or sick leaves.
• Less working hours. Given that the standard working hours do not apply,
employees in such sectors tend to have the advantage of working less hours
particularly if the work is not demanding of their time.
• It helps save time and resources. Employers could potentially save time and
resources as standard procedures of employment and dismissal would not apply
to them.

Some of the negative aspects of the informal market include;

• There is no job security. Employees in such a market are not assured of their jobs,
in as much as they can easily be recruited, they can as well be easily retrenched
or fired.
• The employee is not obligated to receive incentives. In the informal sector
employees would only receive incentives at the mercies of the employer,
otherwise they would have to legal ground to claim their incentives.
• The employees would sometimes be required to work long hours. Given that the
job is not recognized by the state then the standard normal hours would not
necessarily apply. This means that employees in such sectors would potentially
work long hours.

Ans 3:
Industrial district refers to an area containing a group of producers or industries who
produces similar goods and services. They are located near to each other so that they
may share expertise or even resources as well as work together to keep the cost low and
have access to the consumers nearby. For instance, a rural area containing artisans
making traditional hand-woven bag, toys, accessories to be sold as the souvenirs at the
nearby historical site can be considered the industrial districts.

Such form of industrial district brings employment to many people nearby and provide
them with enough income to sustain themselves and enjoy a good living standard. it will
also help preserve the traditional or national identity because many people will be
engaged in creating something unique. Therefore, the government must play a greater
role in preserving such areas. The government may subsidies or provide any other
financial incentives so that many more people join the area to work and also to expand
the area. The government must also invest in tourism campaigns to highlight the beauty
of such industrial districts and the tourist attractions nearby so that the demand for such
items produced by this areas are in demand.

Moreover, with more people joining employment due to the demands of the handicraft
items, we can anticipate a higher contribution to the national output (GDP) as well and
alleviate poverty.
Ans 4

The concentration of activities in cities helps the firms to reduce their transportation cost
of material as firms with similar or related industries concentrated on the same area, this
increases the productivity, innovation and growth of the firm, this is called forward
linkages. Firms get advantage of having large pool of workers who have same set of skills
required in the industry which reduces the cost and time of searching and training the
workers, this is called backward linkages.
The benefits of urbanization lost because of pollution, emergence of slum areas and
congestion in the cities which puts the higher burden on cities and it leads to inequality
and social and political conflicts.
The policies which strengthen and weaken the benefits of urbanization in cities are tax,
trade, transportation and immigration policy.
The policy of government on job training, education, wages health care and housings help
the urban residents who earns lower income.

Ans 5:

The hub and spoke system work by:

• Having a central hub for operations, such as a primary location for flights or
operations to depart from.
• The spoke would be a variety of routes that can be taken from the central hub.
• This helps ensure that demand can be met for flights and operation needs where
the central hub is, while offering a variety of flights or operations to different
locations.

The black hole effect is:

• When a flight is occurring at night and the landing of the flight is difficult because
of a poorly lit run way. As the flight descends it is called a black hole because
visibility is often very low in some low-lit airports. This can be a large concern for
the spokes from a central hub, as these airports are usually smaller and are more
prone to the black hole effect.

Explanation:
The overall concept here is that a hug and spoke system, is a design of how airports or
flights from one location out, serve many outbound destinations. The issue of the black
hole effect often results in poor visibility when landing in a smaller airport that often has
lower lighting.