ABSTRACT
This chapter is concerned with the failure of the manufacturing and service sectors of the 'modern' economy in under developed countries' (UDCs) cities to absorb the labour supplies to which they have had access. The consequence of this failure — 'the employment crisis' — has been the subject of a huge literature. The 'formal' sector in UDCs' cities is a term used with varying degrees of precision to refer to large-scale manufacturing plant, industrial capacity which uses identifiably 'Western' technology, office work and services which are similarly organised along 'Western' lines. The importance of relative factor prices on the choice of techniques is much disputed. Based on the experience of South East Asian UDCs, Ranis's work shows considerably sensitivity of new plants to factorprice-ratios. Policy adopted by UDCs' governments can affect the factor-price ratio. Subsidies to capital effected through an overvalued exchange rate, allowing capital goods and components to be imported relatively cheaply, is a common characteristic of policy in UDCs.
