India has one of the lowest female labour force participation rates among emerging markets

labourforceExcerpts from “Women Workers in India: Why So Few Among So Many?” by Sonali Das, Sonali Jain-Chandra, Kalpana Kochhar, and Naresh Kumar, IMF Working Paper, Asia and Pacific Department:

The Indian labour market displays several striking features: very low rates of female labour force participation; considerable variance in rates of female labour force participation across Indian states; and a large share of both women and men working in the informal sector. The literature on female labour force participation in India has traditionally focused on how demographic characteristics and educational attainment affect the labour force participation decisions of women. In a separate literature, well-known rigidities in Indian labour markets have been put forth as the reason for the high share of informal employment in overall employment—for example, about 85 percent of India’s non-agricultural workers are employed in informal sector jobs. Studies have noted the lack of medium-sized enterprises in India, and have linked firm hiring decisions, growth, and productivity outcomes to cross-state differences in labour market regulations.

India has one of the lowest female labour force participation (FLFP) rates— typically measured as the share of women that are employed or seeking work as a share of the working-age female population — among emerging markets and developing countries. At around 33 percent at the national level in 2012, India’s FLFP rate is well below the global average of around 50 percent and East Asia average of around 63 percent. India is the second-most populous country in the world with an estimated 1.26 billion persons at end-2014. Accordingly, a FLFP rate of 33 percent implies that only 125 million of the roughly 380 million working-age Indian females are seeking work or are currently employed.

Moreover, India’s gender gap in participation (between males and females) is the one of the widest among G-20 economies at 50 percent. Furthermore, female labour force participation has been on a declining trend in India, in contrast to most other regions, particularly since 2004/05. Drawing more women into the labour force, along with other important structural reforms that could create more jobs, would be a source of future growth for India as it aims to reap the “demographic dividend” from its large and youthful labour force.

That gender equality plays an important role in economic development has long been understood in the literature. Various studies have highlighted how lower female labour force participation or weak entrepreneurial activity drags down economic growth, and that empowering women has significant economic benefits in addition to promoting gender equality. The World Economic Forum’s 2014 Global Gender Gap Report finds a positive correlation between gender equality and per capita GDP, the level of competitiveness, and human development indicators. As incomes rise, women’s labour force participation often falls, only to rise again when female education levels improve and consequently the value of women’s time in the labour market increases. This process suggests that, at low levels of development, the income effect of providing additional labour dominates a small substitution effect, while as incomes increase, the substitution effect comes to dominate.

Launched as one of the world’s largest employment programs, MGNREGA offers 100 days of guaranteed wage employment in every financial year for all registered unskilled manual workers (both women and men). The MGNREGA includes pro-women provisions as it seeks to ensure that at least 33 per cent of participating workers are women, and stipulates equal wages for men and women. In addition, there are also provisions for facilities such as childcare at worksites, so as to reduce the barriers to womens’ participation (Government of India, 2014). As well, there are other aspects of the MGNREGA that may make such work attractive for women, for example, the stipulation that work is to take place within 5 kilometers of an applicant’s residence.

The main dataset used is household level data from India’s National Sample Survey (NSS) Organization’s five Employment and Unemployment Surveys, covering the years 1993/94, 1999/00, 2004/05, 2009/10, and 2011/12. The empirical estimation of the determinants of labour force participation is conducted on the most recent round of the survey, that being for 2011/12.

The following facts emerge from the household survey data:

  • labour1Female labour force participation rates vary widely between urban and rural areas. Labour force participation of women in rural areas is much higher than women in urban areas. Over time, the gap between urban and rural areas has narrowed moderately, with most of the convergence being driven by the fall in participation rates in rural areas. As a result, taken together, female labour force participation rates nationwide have fallen since the mid-2000s.
  • labour2There is a large range of female labour force participation rates across Indian states, with states in the South and East of India (such as Andhra Pradesh, Tamil Nadu, Sikkim) generally displaying higher participation rates than those in North India (such as Bihar, Punjab and Haryana).
  • labour3There is also a growing gap between male and female labour force participation rates. These gender gaps are particularly pronounced in urban areas, where they are wider, and average some 60 percentage points. In rural areas, participation gaps between males and females average around 45 percentage points.
  • There is a U-shaped relationship between education and labour force participation rates of women. With increasing education, labour force participation rates for women first labour4start to decline and then pick up among highly-educated women (particularly university graduates), who experience the pull factor of higher-paying white-collar jobs. The gender gap in education in India still remains but has been narrowing over time. As the gender gap in education closes further, particularly at higher education levels, female labour force participation rates can be expected to rise. In addition to raising labour input, the resulting human capital labour5accumulation should boost potential output.
  • Income has a dampening effect on female labour force participation rates, with participation rates higher among low-income households due to largely economic necessity. With rising household incomes, participation rates for women start to drop off.

Female labour force participation in India is lower than many other emerging market economies, and has been declining since the labour6mid-2000s. Moreover, there is a large gap in the labour force participation rates of men and women in India. This gender gap should be narrowed to fully harness India’s demographic dividend. In addition, a related literature also finds that greater economic partipation of women leads to higher economic growth.

A number of policy initiatives could be used to address this gender gap in Indian labour force participation. These include increased labour market flexibility (which could lead to the creation of more formal sector jobs) allowing more women, many of whom are working in the informal sector, to be employed in the formal sector. In addition, supply-side reforms to improve infrastructure and address other constraints to job creation could also enable more women to enter the labour force. Finally, higher social spending, including investment in education, can also lead to higher female labour force participation by boosting female stocks of human capital.

Download full paper HERE

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