INTRODUCTION

Development experts are concerned with fostering economic growth, alleviating poverty, protecting the environment, and improving the general standard of living of people in developing countries. Much of this work is directed toward either creating employment or raising labor earnings because at the bottom of the earnings scale, labor earnings comprise the most significant portion of total income, and hardship and poverty are often the direct results of insufficient access to adequate employment opportunities.

Megacities are frequently the centers of production for a country’s goods and services and the location of the vast majority of a country’s paid-employment opportunities. Every year, megacities attract considerable numbers of rural migrants, who, together with the rapidly growing native population, quickly expand the labor force and generate an enormous policy challenge: to create sufficient employment opportunities to absorb the large number of new workers. With public-sector wage bills being forced to contract in many countries, much of the needed increase in employment is likely to occur within the small-scale “informal sector” or within self-employment. 1 Traditionally, nonagricultural self-employment has declined with modernization, and the urban labor force has become increasingly occupied in regular protected wage employment. However, the recent change in economic conditions, coupled with rapid population growth, may be inducing profound changes in the structure and nature of employment.

This paper addresses the problem of the need to expand productive capacity in developing-country megacities in order to create a billion new jobs over the next 35 years. The remainder of the paper is organized as follows. The next section addresses the question of whether labor markets in megacities have special characteristics. The next two sections describe the labor force and the labor market, respectively, in developing-country 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. A discussion of the potential role of science and technology is then presented. The paper ends with a summary and conclusions.



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INTRODUCTION Development experts are concerned with fostering economic growth, alleviating poverty, protecting the environment, and improving the general standard of living of people in developing countries. Much of this work is directed toward either creating employment or raising labor earnings because at the bottom of the earnings scale, labor earnings comprise the most significant portion of total income, and hardship and poverty are often the direct results of insufficient access to adequate employment opportunities. Megacities are frequently the centers of production for a country’s goods and services and the location of the vast majority of a country’s paid-employment opportunities. Every year, megacities attract considerable numbers of rural migrants, who, together with the rapidly growing native population, quickly expand the labor force and generate an enormous policy challenge: to create sufficient employment opportunities to absorb the large number of new workers. With public-sector wage bills being forced to contract in many countries, much of the needed increase in employment is likely to occur within the small-scale “informal sector” or within self-employment. 1 Traditionally, nonagricultural self-employment has declined with modernization, and the urban labor force has become increasingly occupied in regular protected wage employment. However, the recent change in economic conditions, coupled with rapid population growth, may be inducing profound changes in the structure and nature of employment. This paper addresses the problem of the need to expand productive capacity in developing-country megacities in order to create a billion new jobs over the next 35 years. The remainder of the paper is organized as follows. The next section addresses the question of whether labor markets in megacities have special characteristics. The next two sections describe the labor force and the labor market, respectively, in developing-country 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. A discussion of the potential role of science and technology is then presented. The paper ends with a summary and conclusions.

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WHAT IS SPECIAL ABOUT LABOR MARKETS IN MEGACITIES? Just as megacities have characteristics that distinguish them from other urban areas, there are several distinguishing features of megacity labor markets. First, the urban scale involved means that the tradeoff between scale economies and congestion costs is different than for smaller urban areas. Agglomeration economies create opportunities for improved productivity and for less costly information dissemination per capita, but congestion costs are also likely to be greater. The latter may weaken, especially in higher-income megacities, as access to the World Wide Web and other computer sources improves, although the extent to which telecommunications can substitute for transportation is controversial (see the discussion later in this paper). Second, the composition of economic activity in megacities is distinctive in a number of ways, permitting easier comparisons across megacities than among different locations (e.g., urban and rural areas) within countries. The most distinctive characteristic of economic activity in most megacities is a large quaternary (i.e., high-order financial and service) 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) and when it was adopted; and the government sector is substantial in the majority of cases where the megacity is the national capital. Third, megacities are more open to global influences than are many other urban areas (although some natural resource locations, such as mining towns, are even more influenced by global considerations). The increasing globalization of recent years has made the world’s megacities much more interdependent than before, and international capital mobility and the ease of information connectivity have resulted in a set of megacities competing for internationally footloose economic activities. There will be winners and losers in this competition, and labor market efficiency can help determine the outcome. Fourth, megacities have a mix of advantages and disadvantages that affect their competitiveness and the demand for labor: A better-educated, better-trained, and more diverse labor pool, but more expensive labor costs More access to sources of capital, with favorable influences on the labor market, given the complementarity of factors of production A concentration of educational and training facilities, increasing the potential for human resource investments Much higher urban absorption costs per capita (i.e., the capital costs of accommodating people in the megacity, including housing, infrastructure, and job creation) than in other urban areas and up to six times higher than in rural

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areas (Richardson, 1987), implying that megacity concentration aggravates the investment constraints that cripple many developing countries Severe traffic congestion, with its adverse implications for job accessibility and labor market performance A complicated nexus (though not necessarily fully supported by evidence) from megacity living to higher incomes to lower fertility to higher female labor force participation Higher land costs that may favor locational choices in other areas (e.g., distant sites within the core region or other regions) Information barriers to both migration and labor market entry that may be more difficult as a result of the scale effect Megacities contain a large share of both a country’s industrial sector and the national population, but economic activities are much more heavily concentrated than population. In Seoul, for example, there is a heavy concentration of the nation’s modern and internationally oriented economic activities: 61 percent of managerial personnel, 96 percent of the top 50 corporate headquarters, 64 percent of research scientists, all stock brokerage offices, and 66 foreign bank offices (Yeung, 1995). Istanbul accounts for only one-tenth of Turkey’s population and is not the national capital, yet it accounts for 45 percent of manufacturing, 40 percent of commercial activity, 25 percent of all vehicles, 44 percent of the country’s hotel rooms, and 50 percent of all university students (El-Shakhs and Shoshkes, 1995). Before the revolution in Iran, Tehran accounted for 83 percent of registered companies, 60 percent of wholesale employment, 55 percent of telephones, 53 percent of city bank branches, 47 percent of construction investment, 41 percent of insurance companies, and 40 percent of retail employment. In the new global economy, function becomes more important than population size. For example, in Asia, Bangkok and Singapore are smaller but more interconnected than Beijing or Shanghai (Yeung, 1995). 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). On the other hand, developing-country megacities rank higher in terms of population (and employment) than production. Of the world’s top 20 cities in gross urban product, only 2 are in developing countries: Seoul (a marginal candidate for developing-country city status) ranks twelfth with $93 billion, and São Paulo ranks twentieth with $70 billion, as compared with $854 billion for Tokyo, $448 billion for New York, and $326 billion for Los Angeles. Among other developing-country megacities, Singapore accounts for 65 billion; Hong Kong for $60 billion; Bangkok and Rio each for about $40 billion; and Manila, Cairo, Jakarta, Shanghai, and Calcutta each for $10-15 billion (Prud’homme, 1995).

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THE MEGACITY LABOR FORCE As suggested above, megacities have different economic structures from other urban areas because of their higher degree of connectedness to the international economy, the existence of high-order (i.e., quaternary) services, and the presence of a cosmopolitan elite. This differentiation has implications for the types and composition of the labor force found in megacities. Types of Labor While it is common to discuss the urban labor force in terms of a “formal” and an “informal” sector, recent analysis has suggested that this split is too simplistic and fails to capture the diversity in capital-widening activities, earnings, labor quality, and entry barriers (Kannappan, 1985; Cohen and House, 1996). Some analysts draw instead a distinction between “vulnerable” (Harriss, 1989) and “protected” sectors (Mazumdar, 1983). An alternative but related classification might distinguish five categories: (1) protected labor (contracts and restrictions on entry); (2) competitive but regular labor; (3) unprotected labor (e.g., casual labor, domestic service, wage labor in petty trades); (4) self-employment and family labor; and (5) marginal activities (e.g., hawking, semilegal, or illegal activities). Only numbers (3), (4), and (5) would be included in most definitions of the informal sector. Thus while we refer to the informal sector in the discussion that follows, we are mindful of this underlying complexity, as well as of the need to recognize the informal sector itself as a heterogeneous entity. Indeed, much of the debate surrounding the functioning of urban labor markets is concerned with how to conceptualize the diversity of income opportunities and heterogeneity of the informal sector. Some experts have emphasized the diversity and dynamism of the informal sector (e.g., House, 1987) or the problems these characteristics imply for devising and implementing effective policy prescriptions (Tokman, 1989). On the other hand, despite the heterogeneity of the sector, many studies have found similar identifying characteristics, suggesting a sector of family-based enterprises ranging in size from one-person operations to medium-sized firms. These firms usually operate in relatively competitive markets and use labor-intensive technologies. Workers in these enterprises are often young and poorly educated. Many rural-urban migrants view the informal sector as a point of entry into the urban economy and as a means of lowering their costs of searching for a formal sector job. It is in this broad, inclusive sense that we use the term here. 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--implying not a small segment of the labor force or a subsistence component, but rather a large, unprotected sector

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with considerable economic potential and dynamism, sometimes even contributing to export performance. The informal sector employs more than 50 percent of the labor force in most developing-country megacities. 3 In Indian cities, unregistered (i.e., informal sector) manufacturing firms employ more than do those officially registered by the government. The informal sector is generally larger in sub-Saharan Africa and Latin American than in Asia (World Bank, 1995a), influenced by two main policy considerations: pro-urban strategies that encourage faster rural-urban migration and labor market policies that dampen formal sector job growth by weakening the role of wage adjustments as market signals. The informal sector is also very important for non-household-head workers (see Browder et al., 1995, on Bangkok, Jakarta, and Santiago). Its growth during national recessions is an important labor market adaptation strategy. It acts as a buffer for avoiding more negative effects elsewhere in the labor market, such as downward adjustments in wages and increased open unemployment. On the other hand, it may not be an avenue to formal sector jobs. In a labor survey in Bombay, 70 percent of “casual” workers had not changed jobs, whereas 57 percent of factory workers had (only 13.5 percent had started as casual workers). There is little evidence for the “graduation hypothesis” from the informal sector. Contacts (family, caste, neighborhood) are very important. “Regular work looks like an enclosure, to which a limited number hold the keys” (Holmstrom, 1984:203). On the other hand, especially in Asian countries, many capable informal sector workers “graduate” to more remunerative family enterprises (Blau, 1986; Foster and Rosenzweig, 1994; Soon, 1987). One view about government interventions in the informal sector is that they should be minimal (“benign neglect”). An alternative view is that if governments are to develop informal sector strategies, these should be related to long-term development objectives. In Cairo, for example, “reconstructing, improvement and upgrading low-income, deteriorated urban areas have been temporary remedial procedures to face violence, terrorism, and inflamed social unrest. . . . it is important that the government recognizes and deals with the informal sector. The informal sector should not be seen as either an economic or physical liability (as it is indeed still perceived as such by the government), but rather as an asset that could be directed, upgraded, and recruited to be an efficient, impelling force in systemic development” (Yousry, 1995:25). Manufacturing In many developing-country megacities, the role of the modern and/or large-scale manufacturing sector is relatively small, and the informal sector employs more people. 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-fifth of the employed population is own-account workers, and about one-half of the labor force is in the informal sector. In

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Manila, the manufacturing sector accounts for 20 percent of employment and the personal services sector for about 35 percent. 4 Even in São Paulo, with its reputation as a megacity industrial dynamo, fewer than one-third of all jobs are in the manufacturing sector (more or less equally divided among the 500-plus firms, the 100-499 firms, and the less-than-100 firms). Government Employment There is a large segment of urban employment in the government sector in many developing countries (e.g., Egypt, Argentina). In 1988, 23 percent of urban employment (much higher in Cairo) was in the public sector, although the share may be falling slightly as privatization strategies are implemented. There is evidence of overmanning, and sinecures are common (PADCO, 1982). Efficiency has been impeded by low wages (especially for critical skills) and the problem of the principal agent (i.e., monitoring of work performance). The growth of corruption is a by-product of low and declining public-sector salaries (see Kpundeh, 1994). For example, real public-sector wages fell by 36 percent in Egypt during 1981-86 and by 80 percent in Ghana during 1977-85. In a sample of African countries, the ratio of private- to public-sector salaries for engineers ranged from 1.6 to 8.6 and averaged 3.7 (World Bank, 1995c). Urban Services The housing, transportation, and water and sanitation sectors are also important for job creation. Examples are informal sector construction workers, transportation operatives (120,000 bicycle rickshaw drivers in Dhaka and “phut-phut wallas”--drivers of three-wheel scooters--in Delhi), home-based auto repair shops, and community participation in public works projects. Thus efficiency in these three sectors can have a major impact in terms of higher labor productivity, as well as improved quality of life. The High-Order Financial and Service or “Quaternary” Sector As noted above, most megacities have a high-order service sector specializing in banking, finance, information processing, and professional services. This sector may be small in size, but it is important as a source of employment for highly trained professionals and as a direct link with the global economic system. As international markets are liberalized, this sector can play a major role in the efficient functioning of international trade and finance.

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Women and Children Women and children are employed in many sectors, but their potential vulnerability in the work force and in society justifies specific attention. Female Labor As might be expected, women are paid less than men in developing-country megacities, although in many cases female employment has grown more rapidly, especially in the informal sector. In a survey of urban West Bengal, India (mainly Calcutta), one-fifth of male workers but two-fifths of women were in the two (out of six) lowest-income (expenditure) classes. Male workers earned about double what female workers earned. About one-fifth of adult females were in the labor force (Bardhan, 1989). In addition, the female labor force participation rate was lower in locations where the manufacturing sector was more important, where male job opportunities were better, and where skilled jobs were more plentiful (women, mostly unskilled, were more likely to work in the informal sector). The taboo against women working outside the home was weaker for nonmanual jobs requiring education and for lower castes. The female labor force participation rate was lower for large households (where women were looking after children and old women), better-off households (income effect), households with more adult male workers, and wage-employed households (women having more job opportunities in self-employed households). In Bombay, the adult female labor force participation was 35 percent among casual-labor households, but less than 10 percent among factory-worker households. Of course, women (and children) were extensively employed in family-based economic activities, such as tailoring and laundering. The gender gap in share of informal sector employment in favor of women varies between 5 percent (Korea, Thailand) and 28 percent (Bolivia, Egypt) (World Bank, 1995a). In Jakarta and Santiago, household heads earn two to three times the combined income of other household members (Browder et al., 1995). In São Paulo, the income disparity between male and female workers is also 2:1, although female employment has grown spectacularly, probably because of the need to augment household income in an era of crisis (Arriagada, 1990). In Mexico City between 1960 and 1986, the female labor force participation rate increased from 28 to 35 percent, while the male labor force participation rate declined from 81 to 70 percent. A major factor was the relative growth of the tertiary sector. In Latin America, the economic recessions of the 1980s had a positive impact on women’s participation in the labor force. In the longer run, rapid economic development was frequently associated with the growth of female employment, more education for girls, and lower fertility. Studies of cities below the megacity size class confirm the above gender wage gaps. Telles’ (1993) study of Brazil’s nine metropolitan areas found a formal-sector female/male wage ratio of 0.73, which widened to 0.47-0.54 in the informal sector; Cohen and House

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(1993) found a wage gap of 0.77 in formal-sector work in Khartoum, while Ashraf and Ashraf (1993) estimated a gap of 0.60 in Rawalpindi. There is also debate about explanatory factors behind the wage gap, emphasizing either education and skill differentials (Cohen and House) or discrimination (Ashraf and Ashraf). Reduction of the gender wage gap, implying rising female wages, is a key determinant of increasing female labor force participation because it widens the options available to women and increases the opportunity cost of staying at home. Other facilitating conditions include the development of community child care centers. Child Labor Children work to provide insurance against family poverty and fluctuating incomes. UNICEF has calculated that in 1991, 80 million children aged 10-14 were working, although many of them worked on farms (World Bank, 1995a). In Brazil, for example, about 18 percent of children aged 10-14 work, despite legal restrictions. On the other hand, in megacities child labor may be less of a social problem than street urchins and abandoned children. THE MEGACITY LABOR MARKET Labor Supply It has been estimated that the economically active population in developing countries (largely in urban areas) will increase by about 1.2 billion between the mid-1980s and the year 2020 (International Labour Organization, 1986). 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. The distribution of the labor force varies considerably among different segments of the population: in the developing countries, 94 percent of males aged 20-59 are economically active, 53 percent of women aged 20-49, and at least 15 percent of children aged 10-14. Growth in population and employment in the majority of megacities is slowing down (Beijing and Shanghai are striking exceptions; see United Nations, 1995), and this trend will continue. Moreover, in some cases the slowdown is dramatic. For example, the Rio de Janeiro Metropolitan Area grew in the 1980s at one-third the rate of the 1970s, while the share of the State (and Rio accounts for more than four-fifths of the State’s economic activity) in Brazil’s gross domestic product (GDP) fell from 13 percent in 1980 to 9 percent in 1994 (Tolosa, 1995). However, a few large cities (Dhaka and Lagos, for instance) will continue to grow rapidly (in the 4 percent per annum range), even after decelerating (United Nations, 1995). Undoubtedly, these changes will have important implications for the age structure of the labor market in developing-country megacities.

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The slowdown in megacity growth will relieve labor supply pressure, but only to a modest degree. However, Williamson (1995:101-102) argues that labor supply is not a problem; on the contrary, he suggests that there has not been enough immigration into developing-country cities. Everybody (new migrants, skilled workers, capitalists) gains from additional migration except city-born unskilled workers. The problem, in Williamson’s view, is “underinvestment in cities, not overmigration.” This is an interesting opinion, but a little extreme. A more accurate statement might treat migration as a valve that regulates labor market supply in megacities, sometimes increasing and sometimes declining in response to changes in wages and in labor demand. The Egyptian example gives an idea of the scale of the problem. In Egypt, job creation as a whole is slow, largely reflecting the low rate of private investment (7-8 percent of GDP), given that the working-age population growth rate has been and is expected to be more or less constant at 2.5 percent from 1960 through the year 2010. 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). Labor Demand Because the demand for labor is derived from the demand for goods produced by labor, its strength in megacities depends on their ability to compete in the production and sale of tradable goods with other urban areas in the national economy and with other export-oriented cities in the international economy. Factors that impede the competitiveness of megacities, such as core city congestion and constraints on transportation and communications, will have adverse effects on the demand for labor. However, the negative impacts on the labor market are mitigated by the existence of adjustment mechanisms, such as variations in the interurban and rural-urban migration rate and the dynamism and flexibility of the informal sector. The extent of this mitigation varies from megacity to megacity. As a generalization, these cities can be divided into economically dynamic (e.g., Bangkok, Jakarta) or stagnant (e.g., Calcutta, Rio de Janeiro), with widely divergent demand for labor conditions. The labor absorption problem can be very severe in the latter cases (even in conditions of low immigration), resulting in poverty and the risk of serious social unrest. Labor Market Equilibrium There is an apparent inconsistency between high unemployment in megacities and rural-urban labor market equilibrium. However, complex forces are at work, such as the role of age-selective migration in stimulating future megacity rates of natural increase and in promoting increases in the domestic savings rate, the cost of public overhead capital and inelastic land supplies in choking off real wage and welfare gains, and competition between city-building investment and industrial capital accumulation (crowding out). The appearance

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of disequilibrium can be deceptive because of equalizing differences and adjustments across various sectors, as well as problems involved in estimating unemployment and the size of the informal sector. Megacity employment growth is affected by the extent of social development in rural areas and by the level of resources for industrial capital accumulation. Other factors, such as foreign capital inflows, global terms of trade, and the supply of mineral and energy resources, have played a role (Williamson, 1995). Technological progress can be important as well: “If urban sectors tend, as they do, to have relatively high rates of total factor productivity growth and if the demand for urban output is relatively price elastic, as it is at least for tradables, then final demand shifts toward the dynamic sectors, the derived demand for urban employment is augmented, urban job creation is accelerated, migration responds, and cities expand. The higher the price elasticities of demand for urban output, the greater the migration and city growth given some rate of unbalanced technological progress. The more open the economy to foreign trade, the more likely it is that these conditions will be satisfied” (Williamson, 1995:91). This explanation applies to much of developing-country city growth since the 1950s (Kelley and Williamson, 1984). A somewhat different view is that urban economic growth is self-defeating because “increased in-migration might well undermine any gains from policies to reduce urban poverty directly” (Rodgers, 1989:2-3). However, even if this were true, aggregate welfare would still be improved because urban wages would remain higher than rural wages, and the urban/total labor force share would have increased. The formal sector urban-rural wage ratio ranges from 1.10 (Costa Rica) to 8 + (India, Ivory Coast) and is typically in the 1.50-2.00 range (World Bank, 1995a). 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 sector). Because of data limitations, the assertion that growth-induced migration significantly reduces welfare gains is untested. Another option is to argue for stronger rural development interventions to increase the supply of domestically produced food and to ease the pressure on megacities from rural inmigration. However, strategies to increase rural incomes often involve labor-saving technology, thereby increasing the rural labor surplus. This may be one factor that explains the upswing in the growth rates of Beijing, Shanghai, and other large cities in China in the last decade. Megacity Spatial (Geographical) Structure and Labor Markets To what extent has the decentralization of large metropolitan areas in the developed countries been replicated in developing-country megacities, and how has the spatial reorganization that has occurred affected the operation of labor markets? The severity of core-city transport congestion in many megacities (e.g., Bangkok) suggests that job

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decentralization could dramatically improve labor market efficiency and productivity. In Jakarta and the Hong Kong-Zhujiang Delta region in the 1980s, population growth was much more rapid in the periphery (Tangeram and Bekasi in the first case, Shenzhen and Zhuhai in the second) than in other areas, largely because of the decentralization of manufacturing (Yeung, 1995). In São Paulo during 1977-1987, tertiary employment grew 77-90 percent in peripheral locations (e.g., Ipiranga, Penha, Ibirapuera, São Miguel, Campo Limpo) as compared with 54 percent in the municipality as a whole (United Nations, 1993). Mexico City’s manufacturing sector is declining, and both population and employment growth are more dynamic outside the Federal District in the municipalities of the State of Mexico (Rowland and Gordon, 1994). In addition, Mexico City will benefit much less than the northern border cities from the effects of the North American Free Trade Agreement (Richardson and Rowland, 1994). A related issue that merits more research is whether the spatial ambit of agglomeration economies is extending in developing-country cities as it is in developed countries (a major influence on this pattern is the telecommunications revolution, which has reduced the need for face-to-face contacts). Research Needs and Information Constraints There is a need for more information “on the operation of urban labour market mechanisms, the labour recruitment and job rationing process, the nature of labour market segmentation, the network of ’connections’ and migration linkages, the working of intermediaries and contract systems, the formation and structure of trade unions, access to credit and marketing systems for the self-employed, the pattern of remittances and links with relatives in villages” (Bardhan, 1989:215). 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. Moreover, the private-sector component of labor market operations (e.g., recruitment agents, contract systems, information networks) is rarely integrated into existing databases. The role of social structures and ascriptive networks, including ethnic ties, in constraining access to information about labor market conditions, skills, and credit is very important (Kannappan, 1988). Kinship networks reduce the risks for potential migrants and help overcome the limitations of employment exchanges and government sources of employment. At the same time, however, they restrict access to jobs and pose a challenge to equity-oriented policy interventions. On the other hand, as economies develop, the relative importance of informal networks declines, while that of more formal market networks increases. It would be wrong to draw inferences about the potential superiority of either type of network; both may be quite efficient at different phases in economic development. However, the natural transition from informal networks to market systems may be distorted by legal prohibitions. In many African countries, for example, governments retain a monopoly over employment agencies.

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more attractive to the high-quality educated people who currently, and overwhelmingly, look to the private sector for employment. Finally, we note that the analysis in this paper is restricted to megacity labor markets because traditionally, the development literature has emphasized the importance of the urban economies in absorbing surplus rural labor into a modern industrial sector. Nevertheless, it is important that planners not neglect the direct needs of both rural areas and other, smaller cities. Hence all the above-mentioned policies need to be evaluated at the national, and not just the megacity, level. THE ROLE OF SCIENCE AND TECHNOLOGY How can megacity labor markets benefit from rapidly changing technology? In several developing-country megacities, there are pools of unused educated talent. The back-office telecommunications jobs (e.g., in credit card divisions of major banks) that have decentralized to places such as South Dakota and Ireland could equally go to developing-country megacities if it were possible to finance and undertake the massive capital investments required. The latter would involve further freeing up the privatized telephone companies and facilitating the development of joint, i.e., domestic-foreign ventures. International transportation and communications costs (for commodities, capital, labor, and communications infrastructure) have fallen by 82-97 percent since 1920. Accordingly, national economies cannot be insulated from global pressures, except by self-defeating autarkic interventions. However, megacities are much better placed than other locations within developing countries to take advantage of these falling costs because intranational transportation and communications costs have fallen much more slowly than international costs. The telecommunications lags in many developing-country megacities threaten to widen the disparities between these cities and their developed-country counterparts. However, privatization offers an opportunity to overcome some of these telecommunications infrastructure deficits (e.g., by expanding cellular telephone services). As an example of what is possible, a large-scale telecommunications infrastructure project (Teleport) is being implemented in the decaying downtown of Rio de Janeiro. It involves a 62,000 cubic meter building on a 250,000 cubic meter site, incorporating a satellite ground station; a fiber-optic vertical transmission system; a server for voice mail, e-mail, and fax; a telecenter for voice, data, and image terminals; a video conference facility; and hotels and restaurants (Tolosa, 1995). Similarly, Tehran recently inaugurated the largest telecommunications center in the Middle East (El-Shakhs and Shoshkes, 1995). Telecommunications may also offer developing-country megacities an opportunity to exploit the benefits of being late starters. It is well known that many of these cities (e.g., Bangkok) have woefully inadequate levels of investment in transportation. Would it be

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feasible to jump a stage of technology and, instead of building more highways and transit systems, invest heavily in telecommunications, building a quaternary sector (both national and global) dependent on decentralized, satellite office centers? (Of course, in low-income developing countries, home-based information processing would be more difficult until housing and infrastructure conditions had dramatically improved.) Some analysts (e.g., Schuler, 1992) have argued that telecommunications and transportation are more complements than substitutes, but this relationship--if true--is likely to hold only in the short run, not the long run. The two major innovations already widely in use even in developing countries are the computer and the cellular telephone. For example, Brazil is one of the fastest-growing computer markets in the world. Although most developing countries are not yet competitive in producing state-of-the-art hardware, cities such as São Paulo and Bombay have generated significant numbers of highly skilled jobs in producing software. In the United States, computerization has had destabilizing impacts-on the labor force, creating many jobs in some sectors and destroying jobs in others (e.g., bank tellers, telephone operators, and secretaries). In developing countries, on the other hand, in part because of the availability of cheap labor, the prospects for net job creation are excellent. Moreover, significant opportunities are being created in related activities, such as the expansion of electronic repair services in the informal sector and subcontracting for CD-ROM production and desktop publishing from developed-country corporations. The cellular telephone has penetrated into surprising markets. For example, women participants in the Grameen Bank’s microenterprise loan program in Bangladesh were provided with cellular telephones to increase intervillage communications. More generally, the cellular telephone has enabled developing-country megacity businesses to overcome the frequently severe lags in obtaining regular telephone service. Diffusion could increase rapidly as cellular transmission costs drop; the rate at which this might take place depends not only on privatization, but also on the creation of a competitive rather than a monopolistic environment. SUMMARY AND CONCLUSIONS Developing countries (especially when the so-called transitional economies are included) span a wide range of income and development levels, and their megacities reflect these differences. 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. 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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While acknowledging that there are always exceptions to any rule, several key conclusions can be drawn from the analysis presented here. The promotion of economic growth and economic (and political) stability offers the best guarantee of expanded employment opportunities, higher wages, and labor productivity growth. Appropriate macroeconomic policies (e.g., fiscal discipline, the control of inflation, and financial reforms), combined with both tariff and nontariff trade liberalization, offer the most promising strategy for promoting employment growth and generating enough resources to pay for the infrastructure investments needed to achieve income equity. For this strategy to work efficiently, the economy in general and the labor market in particular need to adjust quickly to changing market conditions. 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 government-controlled--labor unions) that, when enforced (often they are not), aggravate labor market distortions and impede adjustments. Deregulation of the labor market offers prospects for increasing its flexibility, especially by recognizing that policy interventions should work with rather than against market forces and should pay attention to the incentives driving the behavior of individuals and households. 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, will help megacities’ labor markets run more efficiently. Whereas redistribution policies tampering with spatial variations in labor supply and demand are unlikely to be effective, efficiency-oriented urban policies (e.g., low-cost improvements in transportation, broadly based educational investments, privatization of government services, access to credit for small-scale enterprises, and creation of a favorable entrepreneurial environment) can promote labor productivity growth and improve the competitive efficiency of megacities, directly impacting macroeconomic performance. With respect to the role of science and technology, more rapid diffusion of known and already widely applied technologies (e.g., computer information systems, cellular telephones) may transform the structure and composition of employment in developing-country megacities, especially given the global competitive environment.

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ENDNOTES 1.   Definitions of what actually comprises the formal and informal sectors are not always very consistent. Nevertheless, “the basic distinction [between the formal and the informal sectors]. . .turns on the idea that employment in the 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. This kind of protection may arise from the action of trade unions, of governments, or of both acting together” (Mazumdar, 1981:85). However, this is not to imply that wages to employees in the formal sector are always superior to those in the informal sector with similar education and skills. Indeed, heads of more established enterprises frequently have considerable labor market experience and earn more than their formal sector counterparts. 2.   The availability of hard data on labor characteristics and labor markets in megacities is very limited. Some of the information presented in this paper refers either to nationwide data or to urban data generally, rather than to megacities specifically. In many cases, extrapolation of the more general findings to the megacity case is appropriate. However, the limitations of the database are a major problem. 3.   The share is even larger (70-90 percent) in secondary cities. 4.   Characteristics of the informal sector in Manila include the following: 80 percent sold food and other items; 57 percent were unpaid family workers, while only 20 percent earned fixed wages; two-thirds of enterprise heads had not finished high school, compared with one-third of all workers; one-half of enterprise heads had worked at the same place for at least 4 years; and 56 percent were primary breadwinners (Alonzo, 1989). 5.   An externality occurs whenever the actions of one person or firm affect another person or firm in ways that are not taken into account by the operation of the market (Varian, 1984). 6.   Calculations of the private and social rates of return to education are often hindered by a paucity of appropriate data. Theoretically, the decision by an individual or a government to invest in education entails weighing all the costs against the expected benefits of such an

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    investment. The private rate of return to education equals the internal rate of return that equalizes the discounted present value of the private costs of attending school--including all private outlays for school fees, books, uniforms, and other school materials and the 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, 1993). To calculate the social rate of return to education, one must add the public costs and benefits of education. The public cost of education includes public expenditure on buildings and teacher salaries. The public benefits of education include the higher taxes that better-educated workers pay, as well as the effects of raising education on improving the status of women, lowering fertility aspirations, improving maternal and child health, reducing infant and child mortality, and lowering crime, each of which may be significant. Rarely are these calculations even close to complete, although estimates of the private rate of return to education tend to be closer to its conceptual measure: In practice, few studies even deduct from labor earnings or wage rates what the more educated worker is likely to pay in increased taxes (both income and indirect), although doing so is not conceptually difficult. This deduction is irrelevant if the number of hours worked is independent of education and if taxes are proportional to wages. . . .The calculation of the social return to education also tends to be flawed. In most empirical studies, the only distinction between the private and social returns to schooling is that the latter adds public expenditure per student into the calculation of the internal social rate of return (Schultz, 1993:52).

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