Fragmented Labor Markets and the Spatial Structure of Cities in Developing Countries

Abstract

This paper studies the impact of a fragmented labor market on city structure to explain the spatial coexistence of formal and informal labor sectors characteristic of cities in developing countries. I explore reasons for structural differences among cities in developed and developing countries, which current models in urban economics and New Economic Geography have not yet considered. While existing models suggest that poorer people will live in the periphery of the city, I relax assumptions of uniform space requirement and commuting costs to show that clusters of informal labor will form within the city itself because of their dependence on the formal sector for employment. The plausibility of this spatial arrangement, and its consequences, is discussed with examples and supported with qualitative evidence.