Building Productive Cities for an Urbanizing World

In just over six decades, the world has become predominantly urban. In 1960, just 1 billion (out of 3 billion) people lived in urban areas. Today, that number has surged to 4.7 billion—about 58 percent of the world’s population.[reference: wup]

And urbanization is far from over. By 2050, in all regions with the exception of South Asia most people will live in urban areas.[reference: wup] But the future of urban growth will look very different.

There is no single definition of a city. These urban settlements are often defined by each country’s national statistical authorities, typically based on criteria such as population size, population density, administrative status, and share of non-agricultural activities.[reference: city-def] A simpler definition by World Urbanization Prospects uses only population density and total population as the key criteria to identify a city.[reference: def] Let’s take a look at how cities have evolved and will evolve by 2050.

Far from being just a demographic shift, urbanization can be an economic opportunity. Across history, countries have become richer as they have urbanized.[reference: econgrowth] Why? Because cities create the conditions that make productivity and innovation thrive.[reference: blog-jobs]

Urbanization enables productivity because it benefits both industries and people. As populations concentrate in cities, the forces that drive productivity—that is, scale, specialization, and innovation—tend to get stronger.[reference: blog-jobs]

When firms cluster together, they can function more efficiently. Being close to suppliers, customers, and competitors lowers costs. Large, dense markets make it easier to find specialized workers and match their functions with skills. Proximity to other firms also fosters knowledge spillovers: ideas spread faster, boosting innovation and growth. Urban hubs are key nodes in trade and transport networks, reducing shipping and coordination costs for goods and services. Better connectivity makes it easier for firms in cities to access global markets and value chains, accelerating growth.[reference: quigley2008] This economic benefit from the concentration of people and economic activities is called agglomeration effects.[reference: jedwab2017]

There are benefits for people, too, as cities offer opportunities for economic mobility, more diverse occupations, better pay, and better infrastructure. Let’s unpack how cities offer these benefits to their residents.

Jobs across rural and urban areas span a spectrum of skill levels. Low-skill roles such as cleaners, farm laborers, and construction workers typically require no specialized training or formal education. Medium-skill roles—including clerical workers, specialized agricultural workers, and tradespeople—demand a moderate level of education alongside practical, job-specific skills. High-skill roles such as professionals, technicians, and managers require advanced education and expertise.[reference: skill-ilo]

Let’s compare the specialization of each skill in urban and rural areas. In the graphic, the specialization indicator is calculated for each economy by occupation and location (urban/rural). For example, the specialization for low skill jobs in urban areas is calculated in three steps: first, we calculate low skill jobs in urban areas as a share of low skill jobs across all locations; second, we calculate urban jobs across all jobs; and third, we take a ratio of the two: the share of low skill jobs across all locations by urban jobs across all jobs to calculate the specialization. This process is repeated for each skill level and location.

In many low- and middle-income economies, even low-wage jobs (which also tend to be informal) in cities can offer pathways to build skills, gain experience, and move into better opportunities over time.[reference: wb2021]

Prosperity depends on how well countries attract productive workers, match them with the right jobs, and help them continue building their skills. Cities make this easier because skilled workers learn faster when they are surrounded by peers who have similar or complementary skills, ideas, and experience. The result is higher productivity in urban areas, reinforcing cities as engines of economic growth.[reference: wdr2013]

This diversity in skill levels goes hand in hand with a wider range of occupations. By concentrating commerce, industry, transport, and services in one place, cities create more varied labor demand than rural areas, where work is largely centered on agriculture.[reference: quigley2008] Cities can support both everyday occupations and highly specialized roles that rural economies cannot sustain. Larger cities, in particular, do not just offer a greater number of similar jobs; they reorganize work into more specialized and interconnected roles.[reference: task2002]

For many workers, urban labor markets also mean mobility. In cities, people can easily move between employers and sectors, and sometimes even between informal self-employment and wage work. The density of opportunities in cities makes it easier to keep searching for a better match between skills, preferences, and pay.[reference: blog-jobs]

This diversity of occupations also acts as a form of insurance. When one industry slows, workers in cities can often shift into other sectors without having to move away.[reference: blog-li] [reference: urban-sustainability]

Jobs in cities tend to be higher skilled, formal, and more productive; and that usually means higher pay.[reference: urbanpay] Cities bring together larger and more diverse labor markets, with more firms competing for workers, especially in higher-skill sectors.[reference: thickermarket] This competition, along with better infrastructure and job matching, helps push wages up.[reference: compet-pay]

Of course, city life is also more expensive. Rents are higher, and congestion and crowding come with real costs. As such, higher urban wages often do little more than offset the added expenses of city living.[reference: offset-pay] But for many workers and firms, the benefits still outweigh the negatives. Higher lifetime earnings, better job options, and more opportunities to learn and grow make urban areas attractive.[reference: city-better] But these benefits are not automatic; they depend on investment and planning.

What does urbanization actually look like on the ground? Take Addis Ababa, the capital of Ethiopia. In 1975, fewer than 1 million people lived there. The city grew dramatically over the next 50 years such that by 2025, its population was over 6.7 million.[reference: wup]

Its physical footprint grew just as fast. This can be measured by total built-up area: the land surface covered by human-made structures and surfaces, including buildings, roads, and paved land. Unlike administrative boundaries, which may include undeveloped land, built-up area captures the true physical extent of a city.[reference: builtuparea]

When such expansion takes place, cities have the potential to boost productivity and incomes. But this is not automatic. Cities that deliver on their promise are those that have planned and built infrastructure ahead of population growth.[reference: planning] Without that foresight, rapid urbanization can give rise to slums, overcrowding, and limited economic opportunity.

The growth of slums is a result of an unmet demand for land and affordable housing with convenient access to cities and their associated benefits.

Slums suffer from severely inadequate physical conditions, including overcrowding, unsafe housing, and a lack of clean water and sanitation that create serious health risks. Such conditions drive the spread of infectious diseases; worsen mental health through noise, pollution, and lack of green space; and contribute to domestic injuries, disproportionately affecting children and the elderly.[reference: who-slums]

Today, nearly 1 in 4 urban residents around the world live in slum conditions, many of them in low-income countries.[reference: wdi-slum] With rising income levels, the share of people living in slums has declined over the past decades.[reference: wdr2009] However, in many places, progress has stalled and even reversed. For example, in Latin America and the Caribbean, the slum population fell steadily in the early 2000s, but has hovered around 18 percent since 2015. And in Sub-Saharan Africa, the slum population fell from more than 60 percent to just over 50 percent over the space of 20 years. But the share of people living in slums has been rising since 2020.

Even where the share of urban populations living in slums has stabilized or declined, the aggregate picture remains deeply concerning. In cities experiencing rapid population growth, a stable or falling slum share still translates into a rising absolute number of people living in inadequate conditions. Globally, the number of slum dwellers grew from approximately 840 million in 2018 to over 1 billion by 2022—an increase of more than 160 million people in just four years.

Economic growth can help reduce slums by raising incomes and enabling greater investment in housing and infrastructure. But without careful urban planning and adequate housing supply, slums can persist, even in growing economies.[reference: slums]

As cities expand, so does the area of land that requires planning and servicing. Built-up areas are projected to grow by more than [emphasis: 50 percent over the next 25 years], largely in lower-middle income and upper-middle income countries, making the way cities expand increasingly important.

For cities to deliver on their productive potential, how they grow matters as much as how fast they grow. A fragmented city, where housing, jobs, and services are disconnected, infrastructure does not extend to where people live, and institutions lack the capacity to manage expansion, undermines the agglomeration benefits that make urban areas valuable in the first place.

Poorly managed growth leads to high living costs, sprawling informal settlements, and social exclusion, and holds back, rather than amplifies, productivity. But the answer is not to restrict urban growth, but to shape it.

This means planning ahead of, rather than reacting to, expansion, by extending road networks and services before populations arrive, encouraging efficient densities that make infrastructure investment viable, and ensuring land use connects people to opportunity.[reference: plan-city] Cities in Sub-Saharan Africa, where urban populations are growing fastest, face this challenge most acutely. At the same time, the pace of expansion in this region means that large parts of the urban environment have yet to be built, giving today’s planning and investment decisions lasting influence over future productivity and opportunity.