The creation of employment opportunities is a key factor to economic growth, but when pursuing sustainable development, work arrangements must also be fair and stable. In contrast, precarious employment is a common and serious limitation to prospects for development and personal well being in Latin American cities. Discussing this phenomenon in the developing world requires considering the ongoing transformation of the neoliberal urban labour market, the commodity-driven economic structure, and questioning how such features relate to the likelihood of urban sustainable development. The present study addresses precarity in urban labour markets and subjective perceptions of stability and prospects and asks how marginalisation and fragmented urban spaces in a neoliberal context relate to the structural characteristics of precarious labour. This relationship between labour and space is analysed based on survey data from different types of neighbourhoods in Chile's two largest metropolitan areas – Santiago and Concepción – using multilevel regression and ANOVA. Our study finds that precarious employment and poor prospects replicate and reinforce typical territorial inequalities and thus constitute a serious limitation for sustainable development. We conclude that the current labour market, the features of neoliberal extractivism, and weak formal social protection are obstructing urban development that is sustainable in terms of employment. Thus, the conceptual debate on sustainability and urban policy should focus more on the negative effects of precarious employment and its particular relation to spatial fragmentation in growing urban areas.