Govt must fix demand side issues to grow women's participation in workforce

At the 10th Governing Council meeting of the NITI Aayog in May, Prime Minister Narendra Modi emphasised the importance of developing stronger policies and laws to improve the participation of women in the workforce. This exhortation stems from a realisation that, at around 33 per cent (World Bank, 2024), India’s female labour force participation (LFPR) ranks low globally; the average for lower-middle-income countries is 41 per cent. This raises a fundamental question: Why do so few women work in India? Not only is this critical for faster income growth, but because female empowerment is usually linked to better outcomes for families’ health and education, a low female LFPR has implications for broader development outcomes as well. 

 

There are three core drivers of female LFPR: Socio-cultural norms (societal attitude to women’s work), supply-side factors (women’s willingness to work), and demand-side factors (the availability of work). Key research reports analysing the issue typically indicate that it is the socio-cultural norms, coupled with supply-side constraints, that are primarily responsible for keeping India’s female LFPR low. This conclusion passes the smell test too: Indian women spend eight times more time than men on unpaid care work, compared to a global average of three times (UN Women 2019); India ranks 120th out of 146 countries (World Economic Forum Global Gender Gap Report 2024) in terms of wage equality for men and women; and the list goes on. Our ongoing work shows that while these norms and supply-side factors do play a critical role in shaping female LFPR, they explain about half the overall difference with our peers who have much higher female LFPR. Thus, a sheer lack of demand for labour in India explains the other half. 

GDP per capita , PPP (Constant 2021 International Dollars) Source: World Bank 

 

Female LFPR is a result of a country’s female-intensive employment, the labour intensity of the overall economy, and its level of economic development. Since the level of economic development does not differ much among peer countries, we focus on the impact of the first two factors to disentangle their impacts on female LFPR. Differences across countries in female-intensive employment are largely due to societal norms and women’s willingness to work, while differences in employment intensity reflect the relative costs and benefits of using labour versus capital in production processes. Thus, even if societal norms and supply-side factors are similar for two countries, the one with a capital-intensive growth path will have a lower female LFPR, ceteris paribus. The question is, how much do these two sets of factors matter?

 

A quick comparison with Bangladesh and the Philippines is helpful to illustrate these dynamics. If India had Bangladesh’s or the Philippines’ female employment intensity, its female LFPR would rise to 37 per cent and 43 per cent respectively, up from its current level of 33 per cent, but still a far cry from the LFPR of these countries, at 44 and 50 per cent. This points to the significance of demand-side factors in explaining the overall level of female LFPR.

 

A quick peek into Bangladesh’s evolution of female LFPR highlights the importance of the demand-side factors more clearly. In 1990, both India and Bangladesh had similar participation rates for women, at 30 and 25 per cent, respectively. However, as the table illustrates, the former is significantly ahead of us today. The success of Bangladesh’s export-driven ready-made garment (RMG) industry has played a pivotal role in this increase. In 1983, RMG exports accounted for only 4 per cent of Bangladesh’s total exports, which increased to 81 per cent in 2021, amounting to $42 billion. Over 60 per cent of the RMG sector’s employees are female (Export Promotion Bureau Bangladesh 2021). Without this meteoric rise in the RMG industry, Bangladesh’s female participation would have been approximately 38 per cent (and not 44 per cent). The lesson for us is clear, ceteris paribus, a more employment-intensive growth path is better from the perspective of female participation as well.

 

This raises one final question: Why is the demand for labour low in India? The reasons could be multiple and varied, such as the low quality of education and skills, and onerous labour laws, among others. The quality of education can be assessed from the Annual Status of Education Report learning tests in reading and arithmetic. Students passing the learning levels in reading and arithmetic for third grade were at 23 per cent and 33 per cent, respectively. For fifth grade, 44 per cent passed the reading test and 30 per cent passed the arithmetic tests. Close to 15 per cent of firms in India cite labour laws as a major or very severe constraint, compared to just 3.4 per cent in Bangladesh and 6.4 per cent in the Philippines.

 

Addressing these demand-side constraints will be key in enabling an environment for more women to enter and remain in the workforce, pushing up the female LFPR. It is worth realising that influencing demand for work by alleviating constraints on education quality and labour laws is largely in the government’s hands. Once implemented, this will hopefully unleash a virtuous cycle of positively impacting the supply and societal norms, pushing up the LFPR even further.   

  The authors are economists. The views are personal and based on their ongoing work on the topic.