Published on Let's Talk Development

At the current rate, female participation in India’s labor force is unlikely to increase

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Despite rising economic growth, fertility decline, and rising wages and education levels, married women’s labor force participation in urban India has stagnated around 18% since the mid-1980s. In a recent paper, we investigate what can explain this stagnation of female labor force participation (FLFP). Using various waves of cross-sectional survey data spanning the period 1987 to 2011, we look at factors affecting women’s labor force participation and how these factors and their effects have changed over time.
Understanding what causes stagnation in FLFP matters for several reasons. India’s population currently has an advantageous age structure with a large and growing share of working-age people. Yet the benefits a country can reap from this demographic dividend hinge on the productive employment of the working-age population, of which roughly half are women. In fact, high and rising female employment contribute to greater productivity growth (World Bank, 2011) and have been critical in sustaining East Asia’s high economic growth rates (Klasen and Lamanna, 2009; Young, 1995).
Beyond women’s contribution to growth, stagnation in FLFP has implications for the degree to which women benefit from growth. Employment and earnings are robust determinants of bargaining power within the household, with impacts on female and children’s well-being. If there are structural economic or cultural barriers preventing women’s labor force participation, women are unable to capitalize on new opportunities.
Our analysis shows that one factor contributing to lower FLFP rates is the classic “income effect”, whereby rising male education and incomes reduce the labor supply of married women (in terms of labor supply models, the higher income of your spouse reduces the value of earning additional income yourself).
Another important and classic supply side factor is the effect of women’s own education, but its role is more complicated than one would expect. First of all, there is a strong U-shaped relationship between women’s own education level and their labor force participation (see Figure 1). The likelihood that women are in the labor force decreases with education up to middle school, and only increases with at least secondary education. This U-shape remains even if we account for a host of household and individual characteristics (including earnings of other household members and the sectoral structure of employment in the district), and points to the importance of social stigma attached to educated women working in low-skilled menial jobs.
Figure 1: Labor force participation rate of married women, by education level

Surprisingly, we also see that the positive effect of higher education on women’s labor force participation (that is, the upward sloping part of the education-FLFP U-shape) has plummeted. Although it is difficult to pin down why exactly higher education has become less strongly associated with labor force participation, a number of clues point in the direction of changing selection into higher education.
In general, a positive effect of higher education on labor force participation may partly reflect endogenous selection: pursuing higher education and joining the labor force can both be outcomes of some determinants we do not observe in the data, such as the education or labor force participation of women’s parents, influences of peers, or personal preferences. This selection process may change over time. Consider, for example, an increased supply of education (more colleges and universities) and rising marriage market returns to education (more educated men prefer to marry more educated women): both can be reasons for more women to pursue higher education even if they have no strong inclination to join the labor force. The result would be less positive selection and therefore a weaker association between higher education and FLFP.
In our paper, we provide several pieces of evidence in line with reduced positive selection into education. One of those is an analysis of birth-year cohorts, which shows that the ‘returns to higher education’ (in terms of the probability of working) in any particular survey year have been lowest for the youngest cohorts. And for a given cohort, the returns to education have not declined much over time. The declining impact of higher education thus seems to be due to new cohorts entering the working-age population –women who were educated more recently and for whom higher education is less associated with labor force participation.
Finally, we find that the demand side, combined with stigmas attached to certain types of employment for educated women, has also contributed to the stagnation of FLFP. Most employment growth occurred in construction and low-skilled services, while expansion of employment in manufacturing and white-collar services has not been sufficient for absorbing a growing female working-age population. Since particularly educated women primarily look for employment in white-collar services, including health, education, and public service, the slow growth of these jobs compared to rising number of educated women has dampened their labor force participation.
If current trends and preferences persist, there is little likelihood that women will drastically increase their labor force participation rates in coming years. Although employment growth in manufacturing has the potential to contribute to rising FLFP, India is, on current trends, thus unlikely to fully reap the benefits of its demographic dividend. And importantly, rising education of women will not contribute much to their economic empowerment, which is typically associated with employment and earnings. To the extent women’s labor force participation is decided by their families and does not reflect women’s own preferences, or is constrained by their inability to migrate or travel for employment, policy action to promote female employment would be warranted. But even if the main constraint is women’s own preferences, the degree to which this impedes their labor force participation should be a concern to policy makers.

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Janneke Pieters

Associate Professor, Wageningen University, the Netherlands

Stephan Klasen

Professor of development economics at the University of Göttingen in Germany

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