Economics Nobel puts spotlight on missing women from labour force

India has a long way to go in encouraging and ensuring more women are part of its labour force.

On October 9, the Nobel Prize in Economic Sciences for 2023 was awarded to Claudia Goldin “for having advanced our understanding of women’s labour market outcomes”. Every year, it is criticised that the award is not given to scholars working on the pressing economic issues the world is currently facing. Goldin’s work, however, is on the very important problem of low participation of women in the labour force.

The award citation points out that globally men’s labour force participation rate (LFPR) is 73 per cent, whereas for women it is just 50 per cent. Comparing the data for high-income economies and low-income economies, we see that differences are higher in low-income economies. In 2021, men’s LFPR and women’s LFPR in high-income countries were 79.7 and 67.4 (a difference of ~12) respectively, whereas for low-income economies the same variables were 76 and 60 (a difference of 16).

Women who participate in the labour force also earn less than men. Why is there a difference between the employment and earnings of women and men? The answer to this question is important as low women LFPR leads to inefficient use of human capital, and lower growth outcomes.

Goldin’s scholarship gives us an answer. She cites multiple factors which influence the demand and supply of women in the labour force. These include “women’s opportunities for combining paid work and a family, decisions relating to education and childrearing, technical innovations, laws and norms, and the structural transformation of the economy”. While her answers are mostly intuitive, her approach is innovative and full of enterprise.

U-curve of LFPR

Goldin dug deep into archives and historical records of the United States to understand how women’s participation evolved from a traditional agricultural society to a modern contemporary society. The research showed a U-curve for women’s participation rate. The participation rate was around 60 per cent when the US was an agricultural society in its post-independence years of the late 18th century. Women could do both, help men in agricultural fields and take care of the family — this led to a high women’s LFPR. By the early 20th century, the US had transformed from agriculture to industry. It was difficult for women to simultaneously work in industrial set-ups and manage families. This led to a decline in their LFPR, which touched nearly 10 per cent.

At the same time the US economy was becoming a service sector-driven economy, society began to change its norms and expectations around women. Women’s access to formal education increased and norms around marriage were changing; the invention of birth pills allowed them more control over their bodies and life decisions. All these factors combined led to the gradual rise in demand for women in the labour markets thereby pushing their LFPR to nearly 60 per cent levels.

It is assumed that as economies grow, women’s LFPR increases. Goldin’s research shows this is not the case. It requires many societal changes around women’s role in families and expectations that lead to a higher LFPR.

It takes time

The Nobel citation notes that even though Goldin’s work is US-centric, “it holds true in many other countries”. Women’s LFPR is low is a problem in most economies and needs policy attention. What could policymakers learn from her research?

Goldin’s research shows how there are so many factors at work when it comes to women's careers and work. The policymakers should investigate these factors and understand the persistence of these differences. There may be some economies where education levels are low which need higher public investment in women’s education. There may be other economies where education levels may be similar to men but still women’s LFPR remains low due to societal and institutional barriers. Such countries will need laws to remove institutional barriers and an opportunity for women to return to the labour force after having children, having flexible working hours, and so on.

Goldin’s research also shows how societal changes take time and may not be visible right away. These changes will reflect over time when the groups that adopted this new behaviour reach middle age and make career choices which are different from what their predecessors made.

What it means for India

What does Goldin’s research mean for India? For a while now India’s low women’s LFPR has attracted attention from economists. Women's LFPR in India is much lower than in low-income countries and most of its South Asian neighbours. Azim Premji University’s State of Working Report 2023 noted how Indian states are consistently lower than comparable developing countries in terms of women’s LFPR.

Based on the recent Periodic Labour Force Survey for 2022-23, men’s LFPR at 56 per cent is twice women’s LFPR at 28 per cent. On slicing the data for rural and urban cohorts, the differences are even wider.

The 2022-2023 Economic Survey had a chapter on low women’s LFPR. The survey pointed out how women’s LFPR has been improving over the years, and also how survey methodologies underestimated women’s LFPR. Goldin’s research also shows how women’s labour was not recorded correctly in historical censuses leading to their exclusion.

The survey suggested that Self Help Groups (SHGs) can be an effective conduit to tap the rising willingness of women to work. Currently, the 12 million SHGs, comprising 88 per cent of all women-led SHGs, cater to 142 million households. The SHGs can lead to higher women’s LFPR but in terms of wages and careers, it will not make much difference. India clearly has a long way to go in terms of encouraging and ensuring more women are part of its labour force.

This year’s Nobel Prize in Economics to Claudia Goldin for her work on women's participation in labour markets is encouraging from an applied economics and gender point of view. It is highly ironic that despite women being the basis of human life, they have been excluded from most of the important aspects of human life, economic exclusion being one of them. The award should put the spotlight on this ongoing exclusion of women and push towards building a more inclusive society.

(Amol Agrawal is an economist teaching at Ahmedabad University.)

Disclaimer: The views expressed above are the author's own. They do not necessarily reflect the views of DH.