India – igniting inclusive growth by raising female economic participation

Piritta Sorsa 18 June 2014

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India is in many ways at a crossroads in mid-2014. It will have a new government, it will need ignition to restart the growth engine and make it more inclusive. But if this is to happen, then Indian women will have to be given the chance and the incentives to participate more in the labour market. Indian women already show signs of starting gradually to assert themselves more. Currently, female labour force participation is among the lowest in the emerging markets and declining. OECD calculations show that growth could be boosted up to 2.4% points with a package of pro-growth and pro-women policies. Understanding the nature and causes of female labour force participation in India is important to identify these policies. This study goes into more depth than many previous ones to assess female labour market dynamics.

An increasing number of Indian women have dropped out of the labour market

Less than a third of working age women in India have jobs, which is low among the BRICs (Figure 1). Participation in the labour force is higher in the South and West of India compared to the East and North, which may reflect religious customs (Eswaran et al. 2013). Participation is also higher in rural than urban areas and among the poor, and declines with family income and education, but rises again among the highly educated (Figure 2). The poor work for necessity, while social norms among higher income groups have a strong impact on participation. Staying home is often considered to increase a family’s social status explaining part of the negative correlation (Klasen and Peters 2013).

Female participation has dropped over the past decade in contrast to other emerging markets. Much of the decline, especially since 2005, reflects a drop in unpaid female self-employment in agriculture upon a rise in agricultural incomes (Figure 3).

Figure 1. Female labour force participation in BRICs (% of working age population)

Note: Data refer to working age population (15 to 64 years).
Source: ILO, Economically Active Population, Estimates and Projections (6th edition, October 2011)

Figure 2. Female labour market participation by income and education

Note: Data are based on usual principal and subsidiary activity status and refer to working age population (15 to 64 years). Income quantiles are based on the monthly per capita consumption expenditure of households.
Source: NSSO, Employment and Unemployment Survey, Rounds no. 55, 61, 66 and 68.

Figure 3. Worker status by gender

Note: Worker status is based on current weekly activity status.
Source: NSSO, Employment and unemployment survey, rounds no. 55, 61, 66 and 68.

Many women work in low productivity jobs often without social benefits

Women tend to work in less productive jobs than men, as in other countries (World Bank 2012). More than a third are unpaid self-employed helpers, compared to 11% of working men (Figure 3). Women also have higher than average labour shares in low-productivity agriculture, traditional small-scale manufacturing, and in services such as education and household employment. Only about 6% of women employed are in the formal sector with social benefits, such as pensions or maternity leave that can influence participation. This is not necessarily gender-specific as most jobs in India are in the informal sector as many companies stay informal to avoid stringent regulations on labour or business establishment (Government of India 2013).

The quality of female jobs has improved somewhat over the past seven years as the share of female unpaid work declined in rural areas (Figure 3), and organised employment (salaries) rose slightly in services and manufacturing in the urban areas. However, most of the rise in these jobs was still in the informal sector without social benefits (Mesrotha et al. 2014).

Wage differentials with men influence incentives to work

As in many other BRICs, participation may also be influenced by the large wage differential that women face in India, especially among unskilled workers. A barely literate man will earn nearly twice as much as a woman with similar skills. The difference decreases somewhat with education, especially in services (Figure 4).

Figure 4. Female wages as share of male wages, working age population (15-64 years)

Notes: Female wages are measured as a percentage of male wages in the respective industrial sectors as of 2012, and they refer to the principal activity performed during the current week. Unpaid family workers do not report wages, therefore they are not included.
Source: NSSO, Employment and Unemployment Survey, Round no. 68.

The gender wage gap has been shown to influence unequal distribution of unpaid work at home, often leading the woman to stay at home. Khera and Nayak (2009) in a survey in rural areas find that many women do not engage in paid work because of the low wage. With large wage differentials the value of non-market goods production at home can be larger than the market production wage. This may have been reflected in the drop of rural women from unpaid or low paid self-employment, as discussed above, as more men found wage jobs. At the same time, the rural employment programme (NREG) that offers women equal pay and quotas in rural work programmes, has helped raise female participation. This suggests that reducing wage caps and increasing active labour market policies can raise participation (OECD 2014b forthcoming).

Jobless growth has affected women more than men

Many women would like to work more given the opportunities. Household surveys show that a large part of women who stay at home would prefer to work on a regular basis given the right conditions (NSSO). Unemployment is also high among the most educated pointing to a demand or skill problem (Figure 5).

Figure 5. Unemployment rate by the level of education, based on usual principal and subsidiary status

Note: Data refer to working age population (15 to 64 years).
Source: NSSO, Employment and unemployment survey, rounds no. 55, 61, 66 and 68.

The low female participation was also affected by lack of jobs. Adjusting for school attendance, a large part of the rise in female working age population over the past decade stayed outside the labour force, as most of the net job creation since 2000 has been taken up by men (Table 1). The burden of jobless growth was borne mostly by women, as the rise in male working age population has been nearly fully absorbed by the labour market.

Table 1. Employment trends
(Millions, 15-64 years of age)

Note: Working age population 15-64 years.
Source
: Estimates based on NSSO rounds no. 61 and 68.

Econometric evidence confirms the strong impact of social norms and outdated labour laws on female participation

A forthcoming OECD (OECD 2014a) paper estimated quantitatively key determinants of low participation of women in the job market in India. It confirms the strong impact of socio-economic factors, especially in the South and West, in reducing participation. In the East and North other cultural factors, such as religion, dominate. Other deterrents to participation are stringent labour laws that discourage formal job creation with social benefits, weak infrastructure, and access to financial services (potentially affected by impact of biased inheritance laws and dowry payments on access to collateral). It also confirms the positive impact on participation of the rural employment programme, and other factors, such as raising education levels over time, and training for skills.

Raising participation can substantially boost inclusive growth

Another forthcoming OECD paper (OECD 2014b) estimated the growth impact of raising participation with the help of a detailed overlapping generations model drawing on similar work on Brazil (Agénor and Canuto 2013). It shows that raising participation with a package of pro-growth and pro-women policies can boost the growth rate by 1.5-2.4% over time (Table 2).

Table 2. India: Growth impact of policy simulations (% of GDP)

Source: OECD 2014b). In baseline scale changed compared to Table 7 in OECD 2014b. Policy changes are e.g.an increase in targeted cash benefit from 0.01% to 0.04% of family income etc. see footnotes to tables in the technical paper.

Authors’ note: This column is based on an OECD project by Piritta Sorsa, with Mathilde Didier, Caio Guimaraes Souza, Jan Mares, Marie Rabate, Gen Tang and Annamaria Tuske, developed in collaboration with Pierre-Richard Agenor (University of Manchester). The views in the article are those of the authors and do not reflect necessarily those of the OECD.

References

Agénor, Pierre-Richard and Otaviano Canuto (2013), “Gender equality and economic growth: A framework for policy analysis”, VoxEU.org, 24 April

Eswaran M., B. Ramaswami and W. Wadhwa (2013), “Status, Caste and the Time Allocation of Women in Rural India”, Economic Development and Cultural Change, Vol.61 No.2, January, Chicago. 

Duflo, E. (2012), “Women's empowerment and economic development”, CEPR discussion paper No. 8734, January, London

Government of India (2013), Economic Survey of India, Indian Ministry of Finance.

Klasen, S and J.Peters (2013), “What Explains the Stagnation of Female Labor Force Participation in Urban India?”, IZA Discussion Paper No. 7597, Bonn, August.

Khera R. and N. Nayak (2009), “Women Workers and Perceptions of the National Rural Employment Guarantee Act” Economic & Political Weekly Vol. XLIV No 43, October

Mehrotra S., S. Sinha, J.K. Parida and A. Gandhi (2014), “Why a jobs turnaround despite slowing growth?”, IAMR Occasional Paper No1/2014.

OECD (2014a), “Determinants of Female Labour Force Participation in India”, forthcoming.

OECD (2014b), “Gender Equality and Economic Growth in India: A Quantitative Framework”, forthcoming.

World Bank (2012), “Gender Equality and Development”, World Development Report. 

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Topics:  Gender Labour markets

Tags:  India, gender gap, female labour market participation

Head of Division, Country Studies in the Economics Department, OECD