Urbanization and Labor Market Informality in Developing Countries

Rapid and uncontrolled migration created by the population moving from rural to urban areas causes serious problems from the viewpoint of labor markets. Increases in rural-urban migration flows is contributing to a larger urban labor supply. This increasing labor supply has produced an increasing urban unemployment rate and a deterioration in the quality of employment, as it is evident from the increased informal employment rates. One of the most distinctive features of the economies in developing countries is the fact that more than half of workers are employed in the urban informal sector. Urbanization and informal sector are joint and rising trends in these countries. The informal sector represents a significant part of the economy, and certainly of the labor market in developing economies, and plays a major role in employment creation, production and income generation.