Economic growth and female labour force participation in India

Abstract

India has experienced rapid economic growth, structural shifts in the economy, increase in educational attainment levels, and rapid urbanization in the last twenty five years. In the same period there has been a 23% decline in the female labour force participation rate. What's the relationship between economic growth and women's economic activity? Is growth enough or does the nature of growth matter in attracting more women to the labour force? This paper explores these questions using state-level employment data spanning the last twenty five years, 1983-84 to 2009-10. Several cross-country and within-country studies suggest female labour force participation tends to decline initially with economic development, plateaus at a certain stage of development before rising again. This is argued to be mainly a result of structural shifts in the economy, changing influence of income and substitution effects, and an increase in education levels of women in the population. Using dynamic panel models, this paper does not find a significant relationship between level of economic development and women's participation rates in the labour force. Our results also suggest that growth by itself is not sufficient to increase women's economic activity, but the dynamics of growth matter. These findings are especially important to help design policies to improve women's labour force participation rate so that India can take complete advantage of its upcoming demographic dividend.