Female Labor Force Participation: What Is The Hullabaloo About?

What’s the noise? Why the focus from policy makers/ academics/ researchers and Economists towards participation of women in the labor force? What’s so terrible about women not being part of the labor force? These and some more questions have been creating a buzz in India in the last few years. The issue is further highlighted by this year’s Economics Nobel going to Claudia Goldin for her seminal work on women’s earnings and labor market participation through the centuries. Female labor force participation is a driver of growth and therefore, participation rates indicate the potential for a country to grow more rapidly. However, the relationship between women’s engagement in the labor market and broader development outcomes is complex to say the least.

This piece hopes to contribute to the discussion around this topic which will be aptly helped by comments, thoughts and feedback from the reader.

Goldin showed that female participation in the labor market did not have an upward trend over the years, but instead forms a U-shaped curve. The participation of married women decreased with the transition from an agrarian to an industrial society in the early nineteenth century, but then started to increase with the growth of the service sector in the early twentieth century. Goldin explained this pattern as the result of structural change and evolving social norms regarding women’s responsibilities towards household and family. However, this U-shaped hypothesis doesn’t hold true for India and the reason behind this is unclear. 

According to the latest data available from the Centre for Monitoring Indian Economy (CMIE), India’s labour force participation rate (LFPR) fell to 39.5% in this financial year (2022-23). This is the lowest LFPR reading since 2016-17. The LFPR for men stood at a seven-year low of 66% while that of women was pegged at a mere 8.8%. While the Indian economy has grown more than 10 times since 1990, its female workforce participation has fallen from 30 per cent in 1990 to 19 per cent as of 2021. The fall has been particularly steep in the past 15 years when female labour participation plunged from 32 per cent in 2005 to 19 per cent in 2021, shows World Bank data. During that time, the economy nearly quadrupled! 

The Oxfam report (2017) attributes the low and falling LFPR to deep set social norms of a patriarchal, ‘family oriented’ society. A range of factors, like decrease in demand for farm work (due to increased mechanization), decline of the manufacturing sector, lack of jobs commensurate with educational qualifications of women are also forcing them to opt out.

In India, much of the discussion has focused on four key explanations behind the falling female labor force participation:

1) Rising educational enrolment of young women; more number of girls are not only entering schools but also passing out of Grade 10th and 12th which should mean that they are ready to enter the workforce. As found in various studies, female education has a positive effect on LFPR as each year of education adds about 0.6 percentage points to the participation rate. However, there is one consistent factor operating in the opposite direction – education of the spouse (male). This has a larger negative effect (each extra year of male education means a drop in participation of 1 percentage point) than the positive effect of female education. This is most likely due to the gap in earnings (or potential earnings) of men and women. Women tend not to work if married to highly educated males who earn a substantial income. 

2) Lack of employment opportunities; especially those which have regular working hours, pay decent remuneration, offer safe working conditions. 

3) Effect of household income on participation; if the male earning member has a well to do job with a respectable (read: good) salary, the female in the household has lower incentive to be employed. 

4) Measurement to understand whether unpaid time on farms or in household chores should be counted (Chaudhary and Verick, forthcoming; Kapsos et al., 2014; Mazumdar and Neetha, 2011) - this is a raging controversy which believes that by counting all the unpaid labour the FLPR will actually increase and show a very positive move up. 

It’s clear that real economic, business, and societal value of the participation of women in India’s labor force can only be achieved through the active involvement of women across the formal economic ecosystem. Studies have shown how, in advanced economies, women in professional occupations outsource their care work, which further results in employment and income generation for more people. Similarly, Indian women and the economy will immensely benefit from solutions that focus on improving the participation of women in the formal economy. This will include reducing, redistributing, and rewarding unpaid care work.

In essence, higher female education, declining fertility, patriarchal norms, current employment opportunities whether full time/ part time/ gig economy, adequate wages and remuneration, safe working environment, employment benefits are some of the reasons why women are lagging behind in the labor force. The ways to fix this downturn are many and shall need the strong will of both government, policy makers and society to ensure that women find their rightful place in the sun!

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