An Analysis of the Fall in Female LFPR and Gender Pay Gaps in India
Updated: Jun 30, 2020
By Shohom Pal,
St. Xavier's College(Autonomous), Kolkata
There is growing literature about the paradox between female literacy and female employment where female literacy is increasing but female labour force participation is decreasing.
Labour force participation rate or LFPR is the measure of the proportion of a country’s working-age population (who belong to the age group from 15 to 64 years) who are either working or actively looking for work. The formula for calculating LFPR is labour force, that is, employed persons and unemployed persons who are actively looking for jobs divided by the total working-age population.
LFPR(%) = (Persons employed + persons unemployed) / Working-age population x 100
Source: World Bank 2017
In the case of India, it has been observed that the female LFPR increased in the early 2000s, followed by a rapid fall from 31.942% in 2000 to 25.012% in 2017 according to the modeled ILO (International Labour Organisation) estimate.
Source: World Bank 2017
The female LFPR is a U-shaped curve. It suggests that the female LFPR falls in the early stages of economic growth and then eventually rises in the later stages.
Education as a Factor
Male education is a factor for low female LFPR as their education is assumed to be a proxy for household income. When men’s education rises, it is expected that men would be employed which would bring in sufficient wealth into the household. This factor thus results in women having an option of whether they wish to be a part of the labour force or not. It has been seen that as household wealth increases, female LFPR falls. Women having basic education have a higher probability of not exiting employment as compared to women having a secondary level of education. It is so because in the Indian job sector, especially in the service sector, women with a secondary level of education do not have the required expertise to work. Discrimination through wages is also very prevalent. On the other hand, women having primary education generally enter into the labour-intensive market such as the manufacturing sector which in return helps the women to retain their jobs, and therefore the LFPR does not reduce.
Women who remain unemployed generally increase their education level and women having secondary education usually have higher levels of human capital and skills which should yield higher incomes. In India however, it is the opposite. Many educated Indian women are placed on the lower end of the U-shaped curve which can be drawn out when education and female LFPR are plotted.
Other factors such as higher enrollment of women in higher education and lack of jobs also lead to a fall in female LFPR. It has been examined by a study (Chatterjee et al, 2018) that there is a J-shaped relationship between female LFPR and education in India which states that as the secondary education increases, the female LFPR falls. This should not be the case.
Social, Cultural and Financial Factors
In India, social customs and the caste system do not focus on ‘empowering’ women. It is generally assumed that domestic work has to be done by them. Women, in the disadvantaged classes, that is, Schedule Tribes(STs), Schedule Castes(SCs), and Other Backward Classes(OBCs) are observed to have greater employment in comparison to high caste women in rural areas.
Another observation has been that women who belong to higher castes get multiple choices with reference to work whereas such choices do not exist for women of the marginalised sections of society. Women in rural areas tend to have higher probabilities of exiting from employment and lower probabilities of entering into employment if they belong to a wealthier household.
Social norms also restrain women’s mobility and reduce female LFPR. For example, the presence of in-laws reduces the probability of exiting from employment. At the same time, if there are quite a few elderly family members, it leads to a reduction in the probability of women exiting employment, because the in-laws can help in taking care of the children, and therefore, women can go out of the house for work. but if there are elderly family members, the female member of the family needs to take care of them too and hence cannot join the labour force.
The reduction of the female LFPR is also because of the transition of the Indian economy from an agrarian economy towards a service-oriented economy. This transition ignored the creation of jobs in the manufacturing sector and in turn caused a shortage of jobs for the mid-level educated women in the Indian economy.
Gender Pay Gap
Another factor that contributes to low female LFPR is discrimination of gender on the basis of wages. There exists a huge gap in wages between male and female workers. The wage gap is about 30 percent higher in rural areas and 24.3 percent higher in urban areas. There is a substantial difference in wages among workers, both male and female, in different regions, sectors, and genders. The women in the rural formal sector earn less than the males in the urban informal sector and women who are in the urban formal sector earn less than men in the rural informal sector according to the NSSO data. It has also been observed that the market faces a lot of imperfections which prevents the female from entering the labor market. The vocational skills imparted to women have not considerably been made and thus, there is a negligible impact in reduction in the pay gap. On the other hand, males with similar skills are called in for jobs in the labor market.
Women also face wage discrimination in the traditional activities of the tertiary sector. It has been observed that due to low skill formation in women as compared to men causes a greater pay gap in the wages.
Policies and Recommendations
Studies have suggested and recommended policies which would help narrow the gap between such wage gaps and promote higher LFPR.
The National Rural Employment Guarantee Act (NREGA) is an initiative by the government that has helped to boost female LFPR. It was enacted in 2005 and guarantees 100 days of work per year. The initiative has had a major impact on the rural sector increasing both private and public employment.
A new Ministry of Skill Development and Entrepreneurship has been established to organise and establish skill development schemes across different sectors and states in India. To increase the LFPR, the government has taken initiatives such as The Micro-enterprise Development Programme by NABARD to train women through Women Industrial Training Institutes, National Vocational Training Institutes, and Regional Vocational Training Institutes.
The Equal Remuneration Act, 1976 provides the basis to maintain equality between the wages earned by male and female workers. The Minimum Wage Act also helps maintain a basic wage for male and female workers without any discrimination. According to the legislature, both the Companies Act, 2013, and Factories Act, 1948 have provisions that promote equality of females in the workplace.
Policies recommended to boost female LFPR
It is important to make the regulations flexible at certain points which benefit the economy and enhance the female LFPR. The employment of women is restricted to only a few industries. Therefore, policies should be drafted in such a way which helps in increasing access of women into different sectors. This can be done by investing in diversified sectors and upgrading to high-end activities.
Policies should also be implemented to develop infrastructural facilities like transport, housing, sanitisation facilities, and so on. Security and flexible work hours for pregnant women should be available.
The Self Help Groups or SHGs should formulate policies which benefit the members by having access to finance, market, and enhancing employment. Such SHGs can influence laws at state and district levels. These groups need to be organised vertically and horizontally according to their organisation structure to strengthen the rural population. Agriculture, which is still the largest employer of female labour, can be taken as a source of economic growth and job creation if women are ensured ownership rights and have control over land.
Policies Recommended for Reducing Gender Wage Gap In India:
To measure and control the disparity in the gender gap between males and females, the government should implement a robust and continuously mentoring wage level system in both the urban and rural areas. It should also strengthen the compliance towards equality and make gender pay gaps or GPG a punishable offence. At the organisational level, the recruiters and selectors should make sure that the compensation and incentives, both financial and non-financial, are properly allocated towards both male and female employees without discrimination. Mechanisms should be transparent and robust in implementing and maintaining a threshold to minimise the GPG as much as possible. The Human Resource Manager should take into consideration a few policies such as equality in promotion, bonuses, and other incentives to reduce gender inequality. At an academic level, vocational programs should be organised to sponsor women’s education and skill development with an unbiased approach.
Women constitute a large part of the labour force in India and it is important that the female labour force participation rate does not fall. With an increase in their participation in the labour force, women can increase their skill set, can be financially independent and there can be a rise in their standard of living. It will also lead to holistic growth and development of the economy by reduction of poverty and unemployment.
Sarkar, S., Sahoo, S., & Klasen, S. (2019). Employment transitions of women in India: A panel analysis. World Development, 115, 291-309.
Afridi, F., Dinkelman, T., & Mahajan, K. (2018). Why are fewer married women joining the workforce in rural India? A decomposition analysis over two decades. Journal of Population Economics, 31(3), 783-818.
Goldin, C. (1994). The U-shaped female labor force function in economic development and economic history (No. w4707). National Bureau of Economic Research.
Chatterjee, E., Desai, S., & Vanneman, R. (2018). INDIAN PARADOX: RISING EDUCATION, DECLINING WOMENS’ EMPLOYMENT. Demographic Research, 38, 855.