Is there an urban wage premium in Rwanda?

Project Active from to Firms and Cities

Urbanisation is key to promoting sustainable economic growth in sub-Saharan Africa (SSA). A growing body of economic literature has reached a consensus that urban wages are consistently higher than rural wages in a phenomenon known as the “urban wage premium”. However, evidence is much more scarce on an urban wage premium for developing countries and for Africa in particular.

Rwanda's population is still predominantly rural, but the country is urbanising very quickly. Kigali accounts for 76% of the urban population and is the only large city in the country, attracting a large proportion of rural-urban migration. Even given Kigali's dominance, it is the Government of Rwanda's objective to develop secondary cities into thriving economic hubs.

In this project, we find evidence on whether urbanisation has increased worker productivity so far in Rwanda. Our findings have implications for how, and where, Rwanda seeks to harness urbanisation to drive growth especially through urban investments.

We attempt to answer these questions for Rwanda by exploiting high-quality data from three waves of the Integrated Household Living Conditions Survey (EICV), covering the period 2011-2018, to assess the extent to which workers in cities enjoy a nominal wage and consumption premium. The richness of the data also allows us to investigate how long the urbanisation premium takes to materialise after migration from rural areas, as "learning in cities" has been shown to be an important urban premium channel in industrialised countries.