Income Effect on Women’s Economic Participation in India Literature Review Priyal Mundhra (21060242058) Sampadha Bathula (21060242066) 1. Introduction Over the years, with the growth in modern civilization expansion of social and political activities, societies worldwide have come to recognize women as the untapped human resource that can lead them towards development. Women can contribute to economic growth and play a significant role in the overall development of society. As APJ Abdul Kalam once said, 'Empowerment of women is essential as their thoughts and their value systems lead to the development of a good family, good society and ultimately a good nation.' India is at the edge of moving forward to becoming such a nation and is a worldwide economic superpower today. Still, it confronts a queer conundrum: despite significant increases in female education, lower fertility rates, and more economic growth, barely a quarter of its women are employed — one of the lowest percentages in the world, which continues to decrease. (Kamdar, 2020) Women in rural regions have led to this decline in labor force participation, although female unemployment rates in metropolitan areas have remained higher than men. Occupational segregation and women's concentration in lowgrowth industries, the income effect of growing household incomes, and greater mechanization and automation contribute to these developments. (Nikore,2020) Here, women are still seen as second-income earners, without familial and institutional support, due to the persisting belief that their primary role is domestic responsibilities. They are likely to remain excluded from India's remarkable economic narrative in the absence of focused policy initiatives to encourage their participation in the labor force. This literature review focuses on the Income Effect on women's economic participation, i.e., the fall in female labor force participation with growing household incomes. 2. Literature Review Fletcher et al. mention that women's traditional status as secondary income earners requires them to prioritize domestic work. Lower wages create conditions such that they decide to withdraw from the workforce. They have absorbed the idea that they are second-tier wage earners whose main job is domestic chores. There is also evidence of these norms. Here and elsewhere, we define social norms to be a set of beliefs or perceptions of what one's community holds to be valid or acceptable. They are more binding in upper-caste homes, implying that economic progress alone may not be enough to change their impact. This idea is supported by low urban FLFPR. Ghai (2018) explains that women's domestic chores have a higher opportunity cost as their household income rises. Furthermore, when the financial need for women to work outside the house decreases, most families prefer women to stay at home since it reflects an increase in social standing. Increasing household earnings eliminate the need for this supplemental income. When paired with growing gender wage gaps, all of these instances increase the opportunity cost of working outside the house, causing women to leave the workforce. (Ghai, 2018) Parida et al. (2017) point out that the absence of enabling elements – such as flexible work arrangements, creches, safer transportation options, etc. – raises this opportunity cost even more. (Mehrotra & Parida, 2017) Kapos et. al (2014) notes that women's participation in the labor market has decreased in recent decades as average household incomes have risen due to India's fast economic development. This phenomenon is termed as the income effect hypothesis. Between 2005 and 2010, household wealth can account for roughly 9% of the entire drop in female labor force participation. In India, women's isolation has historically indicated that the household had a high income and higher caste position. (Kapos, Bourmpoula, & Silberman, 2014) The U-shaped hypothesis or the income effect hypothesis can also be projected to countries with low, middle, and high-income levels. Sher Verick (2017) explains the U-shaped curve as a link between female labor force participation and economic growth (structural shifts in economic activity and changes to household labor supply and attitudes about women working outside the home). The theory states that female involvement rates are highest in impoverished nations, when women are involved in subsistence activities and decline in middle-income countries, where males are transitioning to industrial occupations. Women are able to join the labor force when education levels rise, and childbearing rates decline in response to rising demand in the services industry. (International Labour Organization, India, and IZA, Germany, 2017) Bhalla & Kaur (2011) explained that the U curve link between LFPR and degree of development is one of the stylized facts regarding women's LFPR in India. This trend emerges because women's survival instincts demand that they work when their income is low. When their family income rises, they feel less pressure to work, and hence a withdrawal from the workforce is observed. When the new work is comparable with their family status, women are more likely to re-enter the workforce. Once physical labor has been abandoned, service occupations (teaching, nursing, government services such as Anganwadi or village health workers, secretarial positions in metropolitan regions) are chosen. Women eventually re-enter the workforce once their income levels reach a particularly high level, thus completing the U. (Bhalla & Kaur, 2011). Fletcher et al. (2017) says that the U-shaped relationship is most visible among urban women. It is most likely due to an income effect. Women opt out of the labor force in favor of increased household production and leisure as household incomes rise and return to market work as the opportunity cost of remaining out of the labor force rises. (Fletcher, Pande, & Moore, 2017) Field et al (2013) notes that upper caste women are subjected to a number of mobility limitations due to their puritanical beliefs, which severely limit their ability to participate in the labor force. On the other hand, lower caste women suffer less societal constraints and are more likely to become self-employed. (Field & Rigol, 2017) Krishnan (2020) says that given the cultural constraints that impact women's involvement in the economy in India, it is reasonable to assume that as male wages have climbed, women have fallen out of labor. In both rural and urban India, empirical evidence shows that increasing household wealth reduces the LFPR of Indian women. In India, however, the U-shaped curve suggested by Goldin is not apparent. (Goldin, 1995). However, there are not enough educated women workers to keep the LFPR on an upward trajectory. The weak substitution effect is particularly evident in urban India, where the LFPR for women fell from 24.4 percent in 2004–05 to 20.4 percent in 2017–18, despite additional employment being added. Women's LFPR has dropped dramatically in rural India, where jobs have been destroyed, from 49.4 percent in 2004– 05 to 24.6 percent in 2017–18. (Krishnan, 2020) 3. References Kamdar, B. (2020, July 31). Women Left Behind: India’s Falling Female Labor Participation. Retrieved from https://thediplomat.com/2020/07/women-left-behind-indias-falling-female-laborparticipation/ Nikore, Mitali. (2020). India's Missing Working Women: Tracing the Journey of Women's Economic Contribution Over the Last Seven Decades. 11th Women's Leadership and Empowerment Conference (WLEC 2020). Available at https://bit.ly/3qCd8fZ Fletcher, Erin and Pande, Rohini and Moore, Charity Maria Troyer, Women and Work in India: Descriptive Evidence and a Review of Potential Policies (December 1, 2017). HKS Working Paper No. RWP18-004, Available at SSRN: https://ssrn.com/abstract=3116310 or http://dx.doi.org/10.2139/ssrn.3116310 Ghai, S. (2018). The Anomaly of Women’s Work and Education in India. INDIAN COUNCIL FOR RESEARCH ON INTERNATIONAL ECONOMIC RELATIONS. Mehrotra, S., & Parida, J. (2017). Why is the Labour Force Participation of Women Declining in India. EconPapers. Kapos, S., Bourmpoula, E., & Silberman, A. (2014). Why is female labour force participation declining so sharply in India? ILO Working Papers 994949190702676. International Labour Organization, India, and IZA, Germany. (2017). Female labor force participation in developing countries. IZA World of Labor. Fletcher, E., Pande, R., & Moore, C. (2017). Women and Work in India: Descriptive Evidence and a Review of Potential Policies. Working Papers: Harvard University. Field, E., & Rigol, N. (2017). Household Matters: Revisiting the Returns to Capital among Female Micro-entrepreneurs. NBER Working Papers. Goldin, C. (1995). The U-shaped female labour force function in economic development and economic history. Krishnan, D. (2020). As India advances, women’s workforce participation plummets. May. Kapos, S., Bourmpoula, E., & Silberman, A. (2014). Why is female labour force participation declining so sharply in India? ILO Working Papers 994949190702676.
