Over the next decade, an unprecedented 1.2 billion young people in the Global South will become working-age adults. However, the job market in these countries is projected to create only 420 million jobs, leaving nearly 800 million people without a clear path to prosperity.
That’s why the World Bank is doubling down on job creation and employment as not just the byproduct of our projects, but the explicit aim of them. Looking to the future, it is clear that urban development will play a key role in that process.
Cities are key for job creation and development
Cities have long been recognized as engines of economic growth and development. They are the epicenters where most private sector jobs are created and most GDP is generated, serving as hotbeds of industry, innovation, and productivity. Cities offer businesses the incentives of agglomeration and high returns on investment, which are crucial for economic development.
Urbanization acts like a ladder out of poverty: no country has ever reached middle-income status without urbanizing. And as cities grow, they become more productive; the doubling of the size of a city has been associated with an increase in productivity of 12% in India, 17% in Africa, and 19% in China.
Key mechanisms that contribute to these productivity gains include:
Knowledge Spillovers: Cities enable companies in similar industries to locate close together, allowing ideas and innovations to easily spread, leading to faster technological advancement and improved production methods.
Labor Pooling: Cities offer larger pools of employers and labor, allowing workers to move easily from less productive to more productive firms, improving workforce efficiency, improving the chances of better matching between firms and workers, and encouraging the development of more specialized skills.
Service Delivery: The density of cities makes it easier and cheaper to deliver basic public services, which in turn attracts businesses and investments.
Economies of Scale: By clustering together in urban areas, firms can access shared infrastructure and services, lowering costs and increasing production efficiency.
Reduced Transportation Costs: Cities offer closer proximity to suppliers and customers, reducing the cost of moving goods and services and leading to lower production costs.
Specialization: Agglomeration can encourage firms and workers to specialize in specific tasks or products, which can lead to higher quality and greater output.
The challenges facing cities in developing countries
However, despite their massive potential, several factors are inhibiting the productivity and economic potential of cities. Many cities globally are struggling with challenges like high housing and commercial real estate prices, inefficient land use and planning, unreliable access to basic services, onerous business environments, inadequate public transportation systems, poor education offerings, limited innovation networks, and the growing impacts of climate change and natural hazards.
Cities in developing countries face these same downsides but lack the financial resources to invest in infrastructure to mitigate them – such as public transport networks, clean water and air, and sewerage. They are also often missing the conditions to enact and implement policies needed for urban labor markets to work well.
As a result, people living in cities in developing countries experience challenges that limit their productivity, livability, and growth, including four times higher homicide rates, 19-30% more time spent in traffic, and 16-28% more pollution than developed countries.