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A general model (a reduced form formulation) for determining urban wages in less developed countries (LDCs) is presented, and, taking this into account, an analysis is made on the nature of urban–rural prices with an endogenous urban wage (i.e. the case in which sector-specific taxation policies are feasible), and of the price scissors (the price of industrial (urban) goods relative to that of agricultural (rural) goods) with endogenous wages (i.e. the case in which only economy-wide, rather than sector-specific, taxation policies are feasible). There is a brief discussion of whether an endogenous urban wage or a government-controlled urban wage is more appropriate for LDCs, and the former is favoured. There is also a note on fixing the urban wage in terms of the utility level. Lastly, a general formulation is presented of urban unemployment, and of tax-induced effects upon it.

An analysis is begun of the basic question of how the burden of financing economic development in less developed countries (LDCs) should be shared between those in the urban and rural sectors. An economy is considered that can trade at fixed international prices with the rest of the world, and in which there is a tax border between the urban and rural sectors. The latter assumption indicates that the government can impose different sets of taxes in the two sectors and, as a result, market prices in the two sectors can differ. In such an economy, the question posed above turns out to be equivalent to asking what the relationship should be among prices received by farmers, prices paid by city-dwellers, and international prices. The analysis presented is based on the simplest model that can highlight the central trade-offs involved in taxing or subsidizing the rural and urban sectors, and abstracts from intra-sectoral heterogeneity of individuals and goods, from inter-sectoral flows of factors such as labour and capital, and from the effects of prices and wages on productivity; the basic model has rural peasants selling their agricultural surplus in order to buy industrial goods.

Some aspects are discussed of modelling the urban sector less developed countries (LDCs) that are central for taxation analysis, and have typically been underemphasized in development economics. An economy is considered in which private firms make the decisions concerning the urban wage and employment, there is urban unemployment, and individuals migrate from one sector to another (rural–urban migration). The objective is not to derive results concerning taxation but instead to highlight briefly some issues that need to be taken into account in taxation analysis for the urban sector of LDCs, and to present a general model of the urban sector. Inefficiencies that arise in the market equilibrium, and the role of tax in partially correcting these inefficiencies, are described. The chapter concludes with a brief discussion of the relationship between urban demand and supply of labour; this relationship is different from that in the conventional neoclassical model.

One of the concerns of this book is with government policies towards food and other agricultural goods, and with how a government treats producers in the rural sector and consumers in the urban sector. Governments – both in LDCs (less developed countries) and in several developed countries – play an active role in setting food prices received by farmers and the food prices paid by city-dwellers. Therefore, it is important to identify what are the salient characteristics of LDCs relevant to such policies, what the stated objectives of these policies are, and what the alternative instruments at a government’s disposal are for attaining these objectives. Accordingly, as a basis for the methods used in the book, this chapter addresses the stated objectives of food-related policies, puts agricultural policies in perspective, and gives an account of the economic structure of LDCs.

Addresses the same issues as were examined in the previous chapter, i.e. the situation in which there is only one set of prices in rural and urban sectors, but with reference to a closed economy. The central message is that when there are non-traded goods, or when there are binding constraints on the magnitude of trade, the government cannot change one price (the size of the price scissors, i.e. the price of industrial (urban) goods relative to that of agricultural (rural) goods) alone: for the balance between the demand and supply of non-traded goods to be maintained, the price of some other commodity or the level of the urban wage must change. A simple model is presented in which the urban wage adjusts to ensure that the demand for food equals its supply. This has some dramatic effects on conclusions concerning the effects of increasing the size of the price scissors: i.e. increasing taxes on the rural sector. The induced wage adjustments reinforce the positive effects that such taxes have on government revenue, and they more than offset the direct welfare effects of the price changes on the urban sector.

This chapter states that the strategy of the Chinese government after the year 1949 was to promote rapid urban industrialization. The rural poverty would be alleviated through the transfer of peasants into the urban industrial economy. This strategy was successful, but the benefits it granted were offset by China's large population growth. The chapter also states that despite the rapid industrialization and urbanization, rural labour increased by 150% over the period, while the land was already fully occupied in 1952 and the use of the land could not be expanded significantly. It also states the important fact that the ratio of urban to rural income and consumption, per capita, was substantial during the period of Communist Party rule.

An analysis of the effects of differential taxation or subsidization of different goods in the urban sector is presented. It is shown that the answer depends critically on two factors: how urban wages are set; and the nature of the effect of wages and prices on urban (un)employment and productivity. Reasons are developed and presented for the conclusion reached that, regardless of concern for inequality, there should be a presumption against differential taxation or subsidization of goods in the urban sector of less developed countries (LDCs).

An economic question that became pivotal in the Soviet Union in the aftermath of the October Revolution of 1917 concerned how to raise the resources required to finance industrialization. The need for industrialization was not a matter of debate, but the issue of the appropriate source of revenue (in particular, the role of the price scissors (the price of industrial (urban) goods relative to that of agricultural (rural) goods) in squeezing resources out of the rural sector), became a raging controversy in the ensuing debate on Soviet industrialization. This debate is important, despite its polemics, because it anticipated some of the difficult but central trade-offs that confront many less developed countries (LDCs) today. This chapter addresses the propositions put forward by Evgeny Preobrazhensky on the Soviet industrialization debate on the basis of the closed-economy model advanced in the previous chapter, in which rural and urban prices are the same and there are binding constraints on trade. Issues concerning the appropriateness of this model are also addressed, in the light of suggestions made by other economists that an open-economy model would be a better vehicle.

A treatment of the wage–productivity hypothesis, which states that the wage a firm pays or the prices its workers face may have an important effect on the productivity of its workforce is presented. The hypothesis is first discussed at the level of the firm, and then analysed using a subclass of models to study how private firms might determine urban wages and unemployment, and how these decisions might be affected by tax and price policy.

The purpose of this chapter is to assess the compatibility between theoretical models of the urban informal sector (UIS) and empirical evidence on the workings of that sector in the context of developing countries’ labour markets. The major point is that, although the UIS is an excellent idea which has served us well in the 1970s and 1980s, there is a need in the next round of research to refine the terminology and the models in light of empirical findings which have come to the fore in the interim. Wage employment or self-employment in small-scale units may be better than or worse than employment in the formal sector. This is not a new point: diversity of earning opportunities and other job characteristics within the informal sector has long been noted. But only recently has this view come to the fore.

The formal-informal-agriculture interaction models are extended with a multi-sector informality. The inter-sectoral relations are empirically analyzed, separately for the rural and urban informal segments, across the Indian states, over the pre- and post-liberalization periods or industry groups. It is tested whether these rural-urban informal segments have complementary or conflicting relations with the formality or the formal and informal sectors are altogether independent entities. Controlling for agricultural activities (as a proxy for resource constraint), it is found out that with an expansion of the formality, while the sectoral size of urban informality expands, that of rural counterpart contracts. However, there is no such dichotomy within informal sectors as far as productivities are concerned. It is also found using firm-level data that while there are congestion of micro-units and immiserization at the firm level within the petty informal segment (both rural and urban), the modern/larger firms are showing some signs of progress.

Using CHIP data for 2002, 2007, and 2013, this chapter examines the effects of social policy reforms on the economic distance between rich and poor households in the urban, rural, and migrant sectors. In the urban sector, pensions consistently narrowed economic distances, whereas other social benefits—health insurance, social assistance, supplementary income, and in-kind benefits—had little redistributive impact. Social benefits in both the rural and migrant sectors changed from being regressive in 2002 to becoming progressive in 2013. In the rural areas, benefits in 2013 from agricultural and livelihood subsidies played the most significant redistributive role; private transfers also narrowed economic distances. Among migrants in 2013, health benefits and taxes and fees narrowed economic distances, although less so than among rural residents. Despite the expansion of social policies during this period, in both urban and rural China market forces trumped the redistributive effects of the social benefits.

By studying the urban political sector—a framework within which towns and the people who lived in them could pool their collective resources to influence national politics, and in which the internal governance and political experiences of different individual towns could influence those of others within the sector—it becomes possible to write a history of late medieval English politics that is not focused exclusively on aristocratic landholders. An urban sector model allows for the political might of smaller towns in a centralized monarchy (such as was the case in fifteenth-century England) to be compared more profitably to that exercised by the more celebrated towns and urban leagues of Northern Italy and Flanders. Also, this book’s emphasis on frequent fluctuations in the nature of the English urban sector, rather than long-term trajectories, serves to question evolutionary narratives concerning the transition from the ‘medieval’ to ‘early modern’ English town.

All the complementarities and conflicts are knitted into analytical frameworks, giving rise to two structural macro-models in the two subsequent chapters. In this chapter, a theoretical framework for short-run analysis is constructed. The basic objective of this model is to build a comprehensive structure for the Indian economy incorporating the formal sector, the differentiated informal and agricultural sectors, and also the government along with some open-economy issues. The formality is proposed to be deeply associated with the urban/large-firm segments of the informality, although it is argued that there is a sharp resource conflict between the former and the rural/petty informality; and under certain conditions, there may even be a contradiction between these two sub-segments of informal sector. Given this framework, the inclusionary/exclusionary effects of an expansion of the formal sector are delineated and thereby, a critique of the idea of inclusive growth is presented.

Economic anthropologists have been slow to take advantage of the scholarship on gender relations in society. Although there have been some positive developments in the direction of incorporating gender analysis in research in economic anthropology, the mainstream of the subdiscipline has rarely appreciated the significance of gender as a primary category of analysis. Following a general discussion, this chapter draws on research on the informal economic sector in the Peruvian Andes to argue that studies are incomplete and often distorted when they disregard gender and that they are enriched to the degree that they examine the differential experiences of women and men in the society and the economy.