Indian workers can earn more in cities, yet many remain in their villages. In Networks and Misallocation, Munshi and Rosenzweig examine 1,19,000 rural households in 242 villages to trace part of the explanation.
It might seem intuitive that households facing the greatest income risk would be most likely to move to cities. However, Munshi and Rosenzweig’s study finds the opposite: households facing greater rural income risk are less likely to have migrant members. What are workers giving up by staying? Imbert and Papp’s 2020 study, Costs and Benefits of Rural-Urban Migration, found that workers could earn 35 per cent more per day doing construction work in the city than working on public employment programmes in their villages. Yet many chose the lower-paying village work over migration. Higher urban wages alone cannot explain workers’ decisions.
In a 2015 working paper, Barnhardt, Field, and Pande examined a housing lottery in Ahmedabad that offered slum residents subsidised homes on the city’s outskirts. Although the new homes offered better living conditions, 34 per cent of lottery winners never moved in, and 32 per cent of those who did eventually left. The researchers found that relocation weakened residents’ ties to family and caste networks, leaving them with less access to the informal support they relied on when facing financial shocks.
The lottery addressed a visible manifestation of urban poverty: inadequate housing in Ahmedabad’s slums. Its premise seemed straightforward. Offer residents better homes, and their living conditions should improve. Yet better housing alone wasn’t enough.
Perhaps these choices seem irrational because we have reduced each decision to a simple trade-off. We often treat these choices as binary: higher wages vs lower ones, better housing vs worse, formal credit vs informal borrowing. But people do not choose between isolated outcomes. Moving to a city may bring higher wages but mean losing access to a support network. Each choice changes not only one aspect of a person’s life, but also the circumstances that shape their other choices. What may appear economically irrational in isolation can become entirely rational when you consider the full context.
Poverty is rarely just a shortage of income or resources. A household’s circumstances can change over time, and income alone does not capture the security a household enjoys or the risks it faces. A higher wage, for instance, may come at the cost of the support a household relies on at home. That support could be a neighbour who helps care for children or a shopkeeper who lets the family buy goods on credit.
The policy implications are more concrete than a general call for policymakers to “consider context.” If rural networks provide insurance, migration policy could help households retain access to social protection when they move. This does not mean making social networks portable, but ensuring that leaving a village does not also mean losing a household’s safety net. Housing policy could also assess more than the dwelling’s quality. Policymakers could consider whether relocation preserves access to work, childcare, transport and the relationships that make everyday life possible. When households move in and out of poverty, safety nets could respond to changing circumstances rather than treat poverty as a permanent category.
This changes what it means to escape poverty. We are accustomed to imagining poverty as a condition people can leave behind by crossing a threshold: earning more, acquiring assets, and moving into a better home. But the evidence suggests that the transition itself can put household security at risk. Moving toward prosperity can mean giving up relationships and informal arrangements that help people get by.
Escaping poverty may mean giving up the very things that made survival possible.
References
1. Munshi, K., & Rosenzweig, M. (2016). Networks and misallocation: Insurance, migration, and the rural-urban wage gap. American Economic Review, 106(1), 46–98. https://doi.org/10.1257/aer.20131365
2. Imbert, C., & Papp, J. (2020). Costs and benefits of rural-urban migration: Evidence from India. Journal of Development Economics, 146, 102473. https://doi.org/10.1016/j.jdeveco.2020.102473
3. Barnhardt, S., Field, E., & Pande, R. (2017). Moving to opportunity or isolation? Network effects of a randomized housing lottery in urban India. American Economic Journal: Applied Economics, 9(1), 1–32. https://doi.org/10.1257/app.20150397
4. Tripuraneni, V., & Robbins, P. (2024). Credit in agrarian India: Narrative policy struggles over farmer surplus. Geoforum, 155, 104081. https://doi.org/10.1016/j.geoforum.2024.104081
About the Author:
Joel Saji is a high school student interested in computer science, economics, public policy, and development. He is a Writing and Research Intern at the Centre for Civil Society through its mentorship programme with Shri Ram College of Commerce and co-founded The Knowledge Corps, a student-led nonprofit focused on community engagement and social impact.