The objective of this paper is to analyse the emergence of slums in the context of rural to urban migration and predominance of urban informal sector in total employment. Sluggish employment prospects in the high productivity sector leads to a residual absorption of labour in the low productivity activities and generates a low level of income for workers. Inadequate income in the face of rising land prices virtually rules out their access to land, thereby creating slums in the urban set up. The persistence of the urban informal sector and the rapid growth of ruban slums emphasise the relevance of employment policy in tackling the problems of urban poverty and spread of slums.