The world is facing a looming jobs crisis. Cities can help

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.

Traffic congestion in Lagos, Nigeria. Congestion is a challenge which inhibits the productivity and economic potential of cities, particularly in low- and middle-income countries. Photo credit: Adobe Stock

The World Bank’s approach to building more vibrant local economies

That’s why we are reinforcing the World Bank’s urban development strategy to explicitly prioritize job creation and vibrant local economies.

Our efforts aim to better connect labor markets, create more skilled workforces, improve access to land for economic opportunities, enable business environments, improve access to finance, and local economic development opportunities. Examples include:

• Upper Egypt: The Local Development Program-for-Results Project aims to boost economic growth and job creation by improving the business environment and enhancing local government capacity to deliver quality infrastructure and services. The government program we are co-financing focuses on empowering local authorities, improving infrastructure, and creating a better investment climate to stimulate private sector development. To date, the program has benefitted 59,000 businesses and about 8 million residents, directly generating an estimated 70,000 jobs.
  
• Armenia: The Local Economy and Infrastructure Development Project aimed to improve infrastructure services and institutional capacity for increased tourism contribution to the local economy in selected regions in Armenia. Through this project, the Government of Armenia enabled the creation of over 1,000 jobs, substantially increased tourism spending, and improved the quality of life of residents through improved infrastructure and services.
  
• Argentina: The Metropolitan Buenos Aires Urban Transformation Project financed the City of Buenos Aires’ ambitious program to economically integrate one of the most iconic and underserved neighborhoods in the city, Barrio Mugica. It focused on enabling residents to have better standards of living through housing and infrastructure upgrades, as well as access to more and better jobs through upskilling, labor market intermediation and access to formal markets. The project established a local economic development center that supported about 20,000 residents and almost 2,200 businesses, allowing almost 2,000 people to access their first formal job and about 200 informal businesses to formalize.

The World Bank is also actively investing in knowledge and research to support countries to grow their economies and provide more opportunities for their people, particularly in urban areas. For instance, the Ten-Thousand Steps in Her Shoes report highlights the role of public transport in women’s economic empowerment in cities, while the Migrants, Markets, and Mayors report provides suggestions to mayors of African secondary cities to better integrate migrants into their labor markets. Stay tuned for an upcoming regional report focused on cities for jobs and growth in the Middle East and North Africa as well.

The World Bank financed a project to economically integrate Barrio 31 in Buenos Aires, Argentina, and enable residents to have a better standard of living, creating jobs and supporting local businesses. Photo credit: Adobe Stock

Conclusion

Cities are indispensable for jobs and economic development. They are the hubs of economic activity, innovation, and productivity. Well-managed urban development is essential for combating poverty, creating jobs, and fostering economic growth. Investments in infrastructure, services, and amenities are necessary to connect people with opportunities and ensure inclusive growth.

By harnessing the transformative potential of cities, we can drive sustainable growth, lift millions of people out of poverty, and help close the global jobs gap. We don’t have time to waste.

Source: blogs.worldbank.org