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The major objective of this paper is to examine the urban employment problem in developing countries and to describe its causes and characteristics. This lays the basis for outlining an action program on urban employment and income generation that can be implemented through Bank sector work and lending operations. The report divides the discussion that follows into three parts. Chapter II first sets the stage by recalling a number of well established facts and relationships concerning the pace of and the contributors to urban growth, its economic importance, and its interaction with rural development. The chapter then develops views on the functioning of urban labor markets. It examines the levels, composition, and characteristics of urban employment and unemployment and discusses the results of some recent research on wage and income differentials, segmentation, and urban poverty. Chapter III then looks beyond any imperfections in the functioning of labor markets at other factors that affect output per member of the labor force by influencing the demand for and supply of labor in urban areas. The last chapter builds on these analyses to outline the scope and nature of an action program at the city/regional level to promote employment and income generation.
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