Motivated by a set of stylised facts based on provincial data for India, this paper
investigates the incidence of urban poverty by modelling the impact of technological
progress in the formal sectors of the economy on the urban informal wage in a foursector
general equilibrium framework with labour and capital market distortions.
Uniform technological progress only in the capital intensive segment of the formal
sectors affects the urban informal workers adversely, whereas productivity
improvement only in the less capital intensive sector benefits them. The sensitivity
analysis demonstrates that when both formal sectors undergo uniform technological
progress at the same rate, informal wage may improve if the vertically integrated
sector is less capital intensive (as capital flows to the informal sectors). This helps in
understanding trends in urban poverty given the strong association between the urban
informal wage and degree of urban poverty.