Is there an urban wage premium in Rwanda?

This paper uses household data from Rwanda to analyse the urban wage premium and urban consumption premium. We find that both nominal wage and nominal consumption of workers in Rwanda are significantly higher in urban areas than in rural areas – and correlate to city size – even when individual characteristics are controlled for. This implies some form of agglomeration effect inherent to Rwanda’s cities.

We also find evidence that rural-urban migrants undergo a learning process in which their wage increases as they gain more experience in the city; however this result does not hold for consumption which is higher even in the first two years of living in a city, implying resource transfer. The urban wage premium is positive and significant for women in both Kigali and secondary cities, but lower than for men in Kigali. When the unemployed (those who work for less than an hour per week) are included, the wage premium is negative and significant, but the consumption premium remains positive.

The evidence we find in this paper confirms the importance of the urbanisation process for productivity and wage growth, and our findings have implications for how, and where, Rwanda seeks to harness urbanisation to drive growth through urban investments.