By Apoorva Ramachandra
Claudia Goldin won the Nobel Prize in Economics Sciences for “advancing our understanding of women’s labour market outcomes“. Jakob Svensson, Chair of the Committee for the Prize of Economic Sciences, mentioned, “Understanding women’s role in the labour markets is important for society. Thanks to Claudia Goldin’s groundbreaking research, we now know much more about the underlying factors and which barriers may need to be addressed in the future.“
One of her seminal papers, “The U-shaped Female Labor Force Function in Economic Development and Economic History,” published in 1994, unveiled a unique relationship between female labour force participation and country’s economic growth. Before her work, it was established that economic growth and female participation shared a positive relationship. However, historical data was not thoroughly studied, making the long-term relationship unclear.
Goldin’s findings revealed a U-shaped curve: At low incomes when agriculture is dominant, the share of women in the workforce is higher.
They are paid or unpaid labourers working on family farms and home businesses. As the income levels rise, the participation rates fall. This is referred to as the income effect. This results from reduced demand for female labour in agriculture, causing women to stay home as their wages decrease.
Additionally, the demand for married women in the manufacturing sector is limited due to social norms or employers’ preferences. As female education improves and their ability to get white-collar jobs increases, they re-enter the labour force. Here, the substitution effect dominates the income effect, so the participation rates start to rise. (The substitution effect refers to changes in working hours in response to wage changes while keeping family income constant.)
Is this relevant to what is happening in India? Female labour force participation rates (FLPR) in India have been declining over the past three decades, from 30.2 per cent in 1990 to 17.5 per cent in 2018. Post which, according to PLFS annual report, participation rates for women of all ages have increased to 25.1 per cent in 2020-21. With this background, a paper titled ‘Explaining the U Curve Trend of Female Labour Force Participation in Bihar’ explored the existence of the ‘U-curve’ in Bihar. In Bihar, up until 2018-19, the female labour force participation rates in rural areas declined from 13.8 percent in 2004-05 to 6.4 percent in 2019-20. In urban areas, during the same period, it declined from 6.8 percent to 6.1 percent. The ‘U-Curve’ hypothesis held true. In exception, the participation rate continued to decline for women who had postgraduate degrees/ diplomas. The rise in FLPR post-2018-19 was attributed to increased non-farm job opportunities, particularly in urban Bihar. Thus, promoting female education and addressing the demand for female workers can help raise FLPR.
While female education is often considered a factor for low female participation rates, demand for female labour takes a backslide. In the paper, ‘Dropping Out, Being Pushed Out or Can’t Get In? Decoding Declining Labour Force Participation of Indian Women’, the authors challenge the prevailing narrative of women voluntarily exiting the labour force due to social stigma. The authors argue that demographic factors like household income, age, caste, religion, etc., do not account for the decline in FLPR. Therefore, suggesting that demand-side factors and not supply-side factors are a reason for the fall in FLPR.
Claudia Goldin’s research also showed that economic growth does not automatically and directly result in reducing gender equality. With economic progress, the demand for female labour increased. However, factors like social stigma and institutional barriers reduced the influence on participation rates.
Therefore, as India’s economy expands, these insights become increasingly relevant, underlining the importance of addressing demand-side factors keeping in mind the social stigma and institutional barriers and enhancing female education to increase female labour force participation.
Apoorva Ramachandra is a Research Associate at Centre for Development Policy and Practice, Hyderabad.
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