Low, stagnating female labour-force participation in India

Low, stagnating female labour-force participation in India
India’s growth strategy has focused on domestic demand and high-value service exports, which generate too few employment opportunities for women
In recent decades, India has enjoyed economic and demographic conditions that ordinarily would lead to rising female labour-force participation rates. Economic growth has been high, averaging 6-7% in the 1990s and 2000s; fertility has fallen substantially; and female education has risen dramatically, albeit from a low level. In other regions, including Latin America and the Middle East and North Africa, similar trends have led to large increases in female participation. Yet National Sample Survey (NSS) data for India show that labour force participation rates of women aged 25-54 (including primary and subsidiary status) have stagnated at about 26-28% in urban areas, and fallen substantially from 57% to 44% in rural areas, between 1987 and 2011. Different age groups or different surveys essentially tell the same story, even though the levels differ slightly.

This is an important issue for India’s economic development as India is now in the phase of “demographic dividend”, where the share of working-age people is particularly high, which can propel per capita growth rates through labour force participation, savings, and investment effects. But if women largely stay out of the labour force, this effect will be much weaker and India could run up labour shortages in key sectors of the economy. Also, there is a wealth of evidence suggesting that employed women have greater bargaining power with positive repercussions on their own well-being and that of their families (see: Engendering Development Through Gender Equality in Rights, Resources, And Voice, World Bank).

A Feminization U hypothesis for female labour participation?

One possible explanation for this trend could be that India is behaving according to the feminization U hypothesis, where in the development process, female labour force participation first declines and then rises. The hypothesized mechanisms for the decline are a rising incompatibility of work and family duties as the workplace moves away from home, an income effect of the husband’s earnings, and a stigma against females working outside the home (generally, or in particular sectors). The rising portion then comes with a receding stigma, high potential earnings of females as their education improves further, as well as fertility decline, and better options to combine work and family duties.

I argue below that some of the mechanisms may be at work in India. Also, a strong U-shape in the relationship between education and female participation is visible in the data, with the turning point in urban areas having shifted recently from completed middle school to completed secondary education ( see: What Explains The Stagnation of Female Labor Force Participation in Urban India? by Stephan Klasen and Janneke Pieters). But the story is not that straightforward for at least four reasons. First, as shown by Isis Gaddis and Stephan Klasen (Economic Development, Structural Change, And Women’s Labor Force Participation: A Re-Examination Of The Feminization U Hypothesis), the empirical support for the feminization U hypothesis is feeble at best, pointing to a very shallow U if at all. Second, it also finds that the U hypothesis cannot explain the vastly different levels of female participation between countries. In India, female labour force participation rates are 22 percentage points below their expected level in a feminization U curve. Third, Rahul Lahoti and Hema Swaminathan ( See: Economic Growth And Female Labour Force Participation In India), who investigated the feminization U hypothesis for India using a state-level analysis, find little support for a U-shape of female participation in the Indian case. Lastly, while income effects, the separation of home and work, and stigma might explain declines in female participation, the rapid fertility decline is associated with the rising portion and should mitigate these trends.

Demand and supply-side drivers of female labour participation

A number of new micro-level studies using NSS data have appeared in the last few years, trying to shed light on this phenomenon, examining labour supply and labour demand factors.

Farzana Afridi and others (Why Are Fewer Married Women Joining The Work Force in India? A Decomposition Analysis Over Two Decades) focus on supply factors. After first showing that the decline in female participation in rural areas is concentrated among married women aged 25-64, they then show that from 1987-2011, rising own education, incomes, and husband’s education could account for most of the decline in female labour force participation in rural areas. They also argue that the decline might be driven by increasing returns to home production, relative to market production. This might be particularly relevant if the domestic production is childcare. While the educated women that drop out indeed report being engaged in home production, the direction of causality is less clear. Maybe women drop out of the labour force for other reasons and then report a focus on domestic activities. Also, it would be good to test whether this decline of participation occurs particularly among women with children of school-going age.

Piritta Sorsa (Why Do So Few Women In India Work?) from the OECD (Organisation for Economic Co-operation and Development) also focuses mostly on supply issues. Analysing data form 1987-2012, the study find a strong income effect, a negative (but over time declining) effect of husband’s education, a U-shaped own-education effect, a negative effect of children, marriage, and the presence of in-laws, and positive effects of access to finance and infrastructure, and access to Mahatma Gandhi National Rural Employment Guarantee Act (MNREGA) employment. Labour demand variables, (imperfectly) proxied by local employment structure, do not display a large impact.

Klasen and Pieters focus on the stagnation of participation of married females in urban areas. Using data form 1987-2011, they find that rising household incomes and husband’s education, falling labour market attachment of highly educated women, as well as adverse development in district-level labour demand, contributed to declines in female participation, while fertility decline and rising own education worked in the opposite direction, to generate a net stagnation. More generally, they argue that rising education and incomes are allowing women to get out of menial and undesirable employment, while jobs deemed appropriate for more educated women (especially in healthcare, education and public service) have not grown commensurately with the rise in female education, leading to falling participation among more educated groups.

The paper by Urmila Chatterjee of the World Bank (2015) shifts the focus towards labour demand and argues that the lack of availability of agricultural and non-agricultural jobs in rural areas appears to be driving the declining participation in rural areas. This is also consistent with claims made by G. Raveendran and K.P. Kannan a (Counting And Profiling The Missing Labour Force), and Ramesh Chand and S.K. Srivastava, who also see poor agricultural performance and the lack of non-farm rural jobs as the main driver.

Using aggregate data, Lahoti and Swaminathan (2016) study the effect of structural change on female labour force participation using state-level data. They find that structural change in India, which led to a rapidly shrinking agricultural sector in favour of a rapidly expanding service and construction sector, mainly contributed to the declining female labour force participation. The lack of a shift towards manufacturing and a persistently low female share in manufacturing ensured that the labour force as a whole did not become more female.

In summary, it appears clear that labour supply factors do play a role in depressing female incomes. It is difficult for married women with some education and children to be employed, especially if they have an educated and well-earning spouse. But labour demand also matters. Particularly in rural areas, it appears that declining agricultural employment has left a gap in employment opportunities for women as non-agricultural jobs have not emerged at the required pace.

Factors that need further investigation

But many questions remain open. The role of rising female education needs further investigation, as it is not associated with a commensurate rise in labour market attachment. Education appears to play other roles. Klasen and Pieters argue that it also plays a role in the marriage market, and Afridi suggest it affects productivity of home production. Second, the role of in-laws seems to differ across studies. Third, the role of policies needs to be investigated more clearly. More micro evidence on the effectiveness of employment policies is crucially necessary. Robert Jensen (Do Labor Market Opportunities Affect Young Women’s Work And Family Decisions? Experimental Evidence From India) provide interesting experimental evidence, but more is required here.

On the other hand, the role of macro, trade and structural policies also needs to be investigated. When comparing India with Bangladesh, one notices how an export-oriented, manufacturing-centred growth strategy has led to increasing female employment opportunities there. China, of course, also pursued such a strategy much earlier with similar impact on female employment. India’s growth strategy has focused on domestic demand and high-value service exports, which generate too few employment opportunities for women, particularly those with medium levels of education. Lastly, policies will be needed to tackle the social stigma that appears to prevent particularly educated women from engaging in outside employment. Here public debates of this issue and its impact on women are clearly necessary.