Document Type : Research Paper
Authors
1 M.A. in Economics, Shahid Chamran University of Ahvaz , Ahvaz, Iran
2 Professor, Department of Economics, Shahid Chamran University of Ahvaz , Ahvaz, Iran
3 Assistant Professor, Department of Economics, Shahid Chamran University of Ahvaz , Ahvaz, Iran
Abstract
In today’s world, countries have come to the realization that their available resources, including human capital, natural resources, and capital, are limited. To use these resources optimally requires that consumption be adjusted and productivity be increased. In this context, the labor force, as a fundamental factor in production, deserves special attention. Several factors such as geographical location, wages, welfare and health indicators, proximity, and population density can impact labor productivity. The present research aimed to investigate the impact of urbanization and its spatial spillovers on the productivity of provincial labor forces during 2006–2019, using the components of the human development index, urbanization rate, population density, and industrial wages. The study revealed the existence of spatial autocorrelation among the investigated provinces. The variables of human development index, urbanization rate, and industrial wage have direct and indirect positive and significant effects on provincial labor productivity, while the population density index has a direct positive effect and an indirect negative effect on labor productivity.
Introduction
Sustainable urbanization has been a fundamental component of the development of every country. Urbanization can have a significant positive impact on economic activities by providing better services, creating job opportunities, and increasing access to basic services. Cities have the ability to transform low-productivity agriculture into a high-productivity manufacturing industry and cost-effective service sectors. Cities in developing countries are the driving force behind economic growth, accounting for 70% of the gross national product (World Bank, 2009). With the increasing share of the population living in cities, improving the productivity of urban areas has become a priority for many governments and economic consulting organizations (OECD, 2016). Accordingly, cities possess the necessary ability and capacity to influence key economic factors. In this respect, the present study aimed to investigate the impact of urbanization on labor productivity, as a crucial factor for development, by evaluating the economic growth and examining several components of cities. The objective of research was to examine the spatial spillover effects of urbanization on labor productivity in Iran’s provinces, specifically focusing on the savings of density. The study tried to answer the following questions:
Is it possible for an urban area to enhance labor productivity at the provincial level?
Is there a relationship between labor productivity in a province and the direct and indirect effects of the provincial human development index?
Are the external benefits of population density and urbanization (such as benefits from population increase and industrial concentration) responsible for this relationship?
Is labor productivity affected by the direct and indirect effects (spillover) of industrial wages?
Can the positive side effects of a more efficient urban economy in urban centers be affected by structural problems caused by rapid and dense population growth?
Materials and Methods
The basic model used in this study is as follows:
The panel spatial econometric method was employed to analyze the spatial spillovers and geographic space involved in the impact of urbanization on provincial labor productivity. The Stata software was used to examine the final data, and a square matrix was created through GeoDa software in order to estimate the model with the spatial econometric method. This matrix represents the proximity between the provinces and assigns a value of 1 to neighboring provinces and 0 to non-neighboring provinces. Stata software packages were then used to standardize the provincial neighborhood matrix, and a vector was obtained by multiplying the matrix by the vector of each variable. The obtained vector was entered as an explanatory variable in the model, and its coefficient expresses the spatial effect. Based on the evaluated processes, the final model is as follows:
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Conclusion
First, the estimated coefficients of the human development index and industrial wage of the labor force indicate that an increase in these factors within each province has a positive effect on labor productivity. Furthermore, the positive effects of these factors spill over into neighboring provinces. In this respect, competitive markets play a role in improving labor attraction factors within the province, thereby preventing the departure of skilled labor. With the implementation of necessary policies, job skills are promoted, and the permanent departure of highly skilled labor force is reduced.
Second, the estimated coefficients of the urbanization variable show that the increase in urban population and demand, in addition to the training of specialized labor in cities, leads to the recruitment of skilled labor. This in turn has a positive spillover effect, increasing the urbanization rate of neighboring provinces. As a result, it leads to an increase in labor productivity in the neighboring provinces.
Finally, the direct effect of population density in a province has a positive impact on labor productivity. However, the indirect effect of population density on labor productivity is complex. While creating a positive external effect due to economies of scale, the indirect effect is also countered by the crowding effect caused by population density. The crowding effect is actually due to the lack of sufficient infrastructure in line with population growth in the province, which leads to negative spillovers of neighboring regions into the province.
The various effects observed provide strong evidence for a positive relationship between urbanization and labor productivity. These effects suggest that, under the appropriate conditions, cities have the potential to generate significant employment opportunities and stimulate growth and development not only within the city and province but also across the country. Cities can create sustainable jobs and increase productivity, thereby maximizing the ability to innovate, respond to market demand, and benefit from the advantages of dense markets.
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