Rural-urban income differential

The growth of minimum wages in some countries during the past 2 decades has exceeded what might have been expected from observation of the labour market. This has contributed to an increasingly inequitable income differential between urban and rural unskilled workers, aggravated by unemployment. The model of dual economy assumes that earnings for unskilled labour in the traditional sector set a floor to wages in the capitalistic sector, and that a gap of 30% or more usually exists between the two sectors. The gap, in part 'illusory' because of the higher cost of living and other disadvantages associated with living in urban areas, may nevertheless represent a real difference between urban unskilled and rural earnings, in other words some of the rural-urban differential may be the result of institutional pressures not directly based on labour market conditions.

[Developing countries] Available data for comparisons show average wage incomes to be much higher than average incomes in the non-wage sector (including the money value of subsistence output). A recent ILO investigation into the size of the average rural-urban income gap in 14 countries of sub-Saharan Africa showed in the first stage an average rural-urban gap with values of from 1 to 2 to 1 to 3.3 for the poorest of three groups of countries (including a value of 1 to 3 in Burkina Faso). For the middle group values were much higher, ranging from 1 to 4 (Benin) to 1 to 8 (Lesotho). For the final and wealthiest group, values fell again, mostly to around 1 to 2 (including a value of 1 to 2.4 in the Ivory Coast). This pattern of change follows both the increasing degree of urbanization and the growth of rural nonfarm activities. In the second stage, estimates were made of the difference in rural-urban prices. These showed a price gap ranging from 10 to 40% between town and country. The result was naturally to reduce the average rural-urban income gap but not, by and large, to change the observed cross-national pattern. Finally, a range of national data was reviewed in order to place the income and expenditure level of the average agricultural worker (whether employed or self-employed) within the hierarchy of urban occupational earnings. For French-speaking countries the results can be summarized as showing that average agricultural incomes were similar to those of urban informal sector employees or unskilled modern sector workers paid the minimum wage. In Kenya the agricultural-urban wage gap was found to be still significant at 1 to 2.9; in Nigeria and Tanzania, however, the ratio approached unity. Rural workers in China in 1993 had an average annual income of $135, two thirds less than workers in the cities. The annual growth rates for average agricultural and urban incomes were 3% and greater than 10%, respectively.