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EXECUTIVE SUMMARY
INTRODUCTION
In the current scenario, female labor force participation is an important driver and an outcome
of growth and development of a country. Womens labor force participation tends to increase
with economic development of the country and this relationship is not uniform at a country
level. Most of the OECD countries have experienced an increase in female labour
participation during the last few decades to the order of 54% in 1980 to 71% in 2010. i The
rate of growth has varied across countries and despite an overall increase in female labour
participation rates, these differences were significant in the early 2000s. This difference in
labor force participation across countries is driven by various economic factors like economic
growth, education and social norms and initiatives taken by the respective governments.
Apart from economic advancement at a country level, another salient factor that drives
female labour participation is the changes in labour demand- for instance, with the emergence
of service sector and new production activities, the demand for female labour force is on the
rise. In 2008, nearly one third of the female working population was involved in the service
sector.ii Another major determinant to female labour participation is the government policies
that enable parents to achieve work-life balance and since 1980, there has a rising focus by
the government of OECD to countries to expand these expenditure. The major policy
instruments are leave from work provided after child birth, extent of childcare services and
tax benefits provided for female workers.
MOTIVATION
This empirical study aims to determine the participation of women in the labour force in nine
OECD countries having similar GDP per capita values namely, Australia, Canada, Spain, UK,
Italy, The Netherlands, France, Germany and Norway. This study aims to highlight the key
trends and factors that affect the female labor force participation and explain the underlying
reason for such an observed causality. Gender wage gap exists in most of the OECD countries
despite having a legislation to ensure equal pay for equal work, irrespective of gender.
Historically, there is a significant wage gap between women and men with women being paid
lesser wages than men. In all OECD countries, women on an average earned 16% less than
men in 2010iii compared to 2000, when the difference in wages was 4 percentage points
higher. In many OECD countries, the wage gap at the top of the earnings distribution is much
higher than at the median indicating the presence of glass ceiling- a phenomena that prevents
women from moving up the career ladder to top notch salaries. In certain countries, notably
in in Germany, Austria, Spain and Italy wage gap is significant among the male and female
low earners as well. Gender wage gap also increases with age and child bearing as indicated
by OECD studies that in 2010, the gender wage gap for 25-29 years was 9% compared to
24% for 55-59 year olds.iv There is a growing need to focus the attention of CEOs and senior
managers on improving gender balance backed by the following reasons namely, a) To attract
and retain the best talent, b) To enhance diversity c) To serve consumer markets having
women as the major customers.v Hence, with increasing competitive pressure, firms are in
need of the best talent and in this regard, women account for a growing share of talent
emerging from the education system and firms risk losing out if they fail to leverage this
resourceful pool.vi Despite the potential benefits that firms can obtain from providing a more
prominent role to women, they are under-represented in the business sector.
topic of female labor force participation makes for an interesting study.
vii
Hence, the
Variables
Notation
Dependent variable
Female labour participation
flpr
Independent variables
Labour market characteristics
Part time female employment pef
Percentage of services in
empinser
employment
Unemployment rate
une
femser
paid or self-employment.
Ratio of females employed in services to the total
number of females who are employed expressed as
Strictness of employment
strict
protection
a percentage.
The OECD indicators of employment protection
legislation measure the procedures and costs
involved in dismissing individuals or groups of
workers and the procedures involved in hiring
workers on fixed-term or temporary work agency
contracts.x
gendwagg The gender wage gap is unadjusted and is defined
ap
gdpc
Agriculture/Fishing/Forestry
empagri
Services Employment
empser
Manufacturing
empman
industry.
Percentage of labour force engaged in
manufacturing.
gdpser
Log of population
lpoptot
pop65
agedep
Employment to population
empl
ratio
Female enrolled-secondary-
rawsec
femter
educationxvi
Logarithm of Ratio of number of females enrolled
education
Log number of female
enrolled-tertiary education
femsec
Fertility rate
rates.xix
Measured as the number of mobile subscriptions
Internet access
gexp
education
METHODOLOGY
We started collecting data from 1980 onwards till 2010. As we kept on adding explanatory
variables the gap in the data available started becoming more prominent. So finally we
truncated the data set from 1998 to 2009 as data gaps was less sparse for this range. In case
data for one of the years was missing in between two years, we extrapolated the value by
recognising the trend in the explanatory variable.
Since we have panel data for 12 years, we have to make a selection between either of the two
Panel Data methods.
Step1: Creating lag and log variables
Lag variables were created for the following Explanatory Variables-
indicates the number of children (past fertility) exerts a prominent negative effect on female
labour participation discouraging them from seeking impactful and full time employment
outside from house. As birth rate climbs up, new mother choose to withdraw from employee
workforce and concentrate on childcare. This result has been further corroborated by works
of Paresh Kumar Narayana and Russel Smyth 2 that Fertility negatively Granger causes
Female Employment for Australia.
In the nine OECD countries which are the focus of our study, year on year increase in female
labour force participation over 1998-2009 has been positive, with an average CAGR of
0.8107 percent. The population during the same time saw an average CAGR of 0.7241
percent. The proportion of female joining the labour force outpaced the increase in
population. The most striking example was Germany, where population has remained
stagnant from 1998-2009, but the women who came out to be a part of labour force increased
from 62.54% in 1998 to 70.37% in 2009. Surprisingly, during 1998-2009, there has been a
positive correlation between fertility rates and female labour supply in these 9 countries. This
is contrary to the microeconomic predictions and seminal work done by Becker and Lewis
(1973), and empirical work done by Butz and Ward (1979) for U.S. and Mincer in which
Economic models of fertility relate higher women education level with an increase in labour
supply and a reduction in fertility.3
The rationale behind the microeconomic prediction is logical and intuitive. Women face a
disproportionate trade-off between raising children and having a career. When we regress
female labour proportion with fertility we ought to expect a negative relation. However,
the situation is complicated by endogeneity. For instance women with high career ambition
will be negatively correlated with fertility, and the regression between fertility and labour
force participation will be spurious. To a larger extent panel data takes care of the
endogeneity by averaging out the unobservable and eliminating it when making a Fixed
Effect Method estimation. The Fixed Effect Method output between Female Labour Force
Participation and Fertility is mentioned below for the 9 OECD countries, and it is positive.
2 Female labour force participation, fertility and infant mortality in Australia: some
empirical evidence from Granger causality tests, Applied Economics, February 2006, pp
570
3 Labour Market Participation of Women and Fertility: the Effect of Social Policies,
Daniela Del Boca, Rolf Aaberge, Ugo Colombino, John Ermisch, Marco
Francesconi, Silvia Pasqua and Steinar Strm, pp3
Flpr
Coef.
Std. Err. t
0.24213
0.02768
Fert
9
0.26130
8
0.04493
_cons
P>t
P>t
8.75
0.00
.1871918
.2970854
5.81
0.00
.1721272
.3504857
Flpr
Coef.
Std. Err.
P>t
Pef
Lpoptot
Fert
primsec
_cons
0.476024
1.425502
-0.00254
0.401591
-10.4058
0.052595
0.158437
0.030887
0.280239
1.136695
9.05
9
-0.08
1.43
-9.15
0
0
0.935
0.155
0
Government Expenditure
The question of causality between Fertility and Female Employment leads to how should
government direct policies towards the population. If Female Labour Force Participation
negatively causes fertility then the government needs to improve paid maternity leaves to
encourage working women to have more children in OECD countries. On the contrary if
higher Fertility Rates, negatively causes Female Labour Force participation then the
government policies should be directed towards reducing the cost of mothers from re-entering
the labour force and increasing child care facilities thus reducing the opportunity cost for
women to tend to their children.
Thus either ways government expenditure on social causes have a role in improving the
Female Labour Force Participation. The only point worth debating can be the causality of
Government Expenditure enhancing Fertility Rates and Fertility Rates hence increasing
Female Labour Force Participation or government Expenditure directly impacting Female
Participation Rate which in turn causally impacts fertility. Which in anyways is beyond the
scope of this work.
From our regression analysis we found Government Expenditure positively impacts Female
Labour Force Employment. Since social expenditure, rather than infrastructure building was
regressed we expect the lag of government expenditure not to make much of a difference, and
was proved with our result. The lag of government expenditure wasnt significant while
controlling for other factors.
Florence Jaumotte5 in her work has shown that inadequate childcare childcare is a constraint
for full time employees than for part time employees, and even his result are in line with our
results about the positive significance of Social Expenditure on Female Labour Force
Participation.
Co-eff
gexp
Std. Error
0.3623326
0.1532204
p>t
2.36
0.02
laggex
p
_cons
0.1138038
-11.11923
0.1329684
2.065181
0.86
-5.38
0.395
0
Pef
Coef.
Std. Err.
0.282544
0.051724
P>t
[95%
Conf. Interval
.1796846 .
5.46
0 3854038
The proportion of older people in labour force has been on a constant decline on a worldwide
basis. In 1950, 33.33 percent of people above 65 participated in labour force, today it is just
20 percent8. In European countries the same set of figures were 22 percent and 5 percent
respectively8. This change increases the pressure on government expenditure for pensions and
healthcare for the elderly. As the proportion increases further (none of the 9 countries in the
1998-2009 range have a fertility rate above 2- the self-sustaining level) three changes are
simultaneously happening9 which is improving the female labour proportion in the labour
force. First is a social change, as the generation prior to 1970 moves out of the workforce the
social change is integrating women faster into the formal labour force because of break of
social traditions. Second is, the economic dimension that female contribution leads to higher
economic growth. Third is, more female participation leads to financial sustainability of the
welfare situation of these countries. With respect to the third point governments will be
further propelled to promote female labour participation to reduce the fiscal gap due to rising
welfare expenditures.10
Fixed Effect regression while controlling for the rest of the variables gives the following
outputP>t
flpr
Coef.
0.468244
Std. Err.
[95%
0.250205
Conf. Interval]
-0.029876
pop65
9
7
1.87
0.065 0.966366
Proportion of female enrolled for secondary education:
Educational attainment helps us to explain the differences in labour force participation among
men and womenxxiv Studies have shown that a key factor driving womens aspiration to join
the labour force is the sharp increase in girls educational attainment in the recent decades.xxv
Logarithm of females employed for tertiary education
The relation between female labour force participation and logarithm of tertiary education is
negative which is counter intuitive. One of the possible explanation for this anomaly is the
concept of discouraged worker effect theory according to which well educated women do not
prefer re-joining the work force once they decide to drop out of work force (Sabarwal et al.,
2010). Another possible explanation could be the income effect according to which, higher
levels of education leads to jobs with higher hourly wage rates that enables families to afford
having one parent who works part time.xxvi
flpr
Coefficient
Standard
p>t
Error
ltertorg
-0.0824
0.0308
-2.68
Lower
Upper
0.009 -0.1435 -0.0211
Unemployment rate:
As expected, unemployment rate and female labour participation are negatively correlated
with each other. Family related and labour market related constraints can curb womens
ability to help stabilise family incomes. The perceived need for them to seek employment and
join the labour force may not be so severe if earnings losses of men in their households are
temporary or if out-of-work benefits provided by the government is high. In addition, meanstested unemployment benefits that reduces once one partner in the household starts earning
also acts like a significant barrier to boosting female unemployment. With the onset of
recession in 2009, gender employment gaps reduced across all OECD countries with the
exception of Israel, Sweden, Poland and Korea. Female employment suffered only marginally
compared to males since the impact of recession was predominant in the manufacturing,
trade and construction sectors compared to the services sector where most of the females are
employed (In 2008, one-third of the female working population was employed in service
sector in OECD countries)xxvii and the services sector showed a modest decline during the
same period. Evidence from previous studies on recessions have shown that while men are
more likely to lose jobs at the onset of recession, they are more likely to find jobs once the
economy recovers (Maier 2011). However, the same cannot be said for women since the
phenomena of discouraged worker effect is more predominant and they may not try rejoining the labour force once the economy recovers (Sabarwal et al., 2010).
flpr
Coefficient
Standard
p>t
Error
pop65
-0.2545
0.0946
-2.69
0.009
Lower
-0.4429
Upper
-0.0661
Coef.
0.144
35
Std.
Err.
P>t
[95%
Conf.
0.0676
06
-2.14
0.036
-0.27882
Interv
al]
0.0098
8
However the factors mentioned above applies only to the mean and higher level of
education distribution whereas these concerns are overcome by economic distress and
the woman has to work
Fertility decline in women leads to higher female participation
The growing education attainment level among individuals might not be inclined
towards labour market expansion. There is a possibility that the rising female
education might be associated with declining labour market orientation (unobserved)
As an epilogue to the previous point, the focus of female education might be to
improve the marriage rather than her labour market prospects
Labour demand effects:
Even if the above mentioned labour supply factors are improved upon labour demand
is what sets the lower benchmark for female participation
In particular, say the number of educated women needed in a particular white-collar
job (service industries, healthcare and education) declines which will naturally
propagate to labour supply as well
Therefore the relative difference in labour supply and demand of these type of jobs at
the local level will impact the participation rates
Apart from the supply and demand related effects, the following 3 sectors have an important
part in determining the female labour force participation.
Service sector
Manufacturing sector
Agricultural sector
Hence focusing on expansion in service sector demand and supply would be one way to
address the stagnant FLFP economies. One way to go about it would be to decrease the entry
regulations and increase the financial and social incentives for women.
In our analysis we found Proportion of Employment provided by Services to have a positive
effect on Female Labour Force Participation while controlling for other factors.
flpr
empser
Coef.
1.3591
42
Std.
Err.
0.2658
47
t
5.11
P>t
0
[95%
Conf.
0.8303
82
Interv
al]
1.8879
02
Employment in Agriculture
Agriculture being the biggest employer is a characteristic of African and Asian economies.
They are low income countries, mostly backward and with inadequate access to good quality
education. They do employ large number of women in agriculture sector but it is more on
account of push factors rather than the pull factors. As the employee proportion of
Agriculture increases it can be hypothesised that women engagement in labour force will
increase. However, what becomes more troublesome is the skewness of amount of work put
in by women via men, and the elongating gender wage gap. In agrarian economies women
tend to children, the elderly, the cattle and other household activities. In addition to this
women are also involved in working at agricultural farms for minimal to no wages. Women
are more likely to be involved in part time and seasonal employment and earn lower wages
than menxxx, thus increasing the gender wage gap. The decreasing dependence on agriculture
to fuel the GDP growth is one of the causes why female participation across GDP per capita
is the famous U Curve. As share of agriculture decreases and manufacturing picks up GDP
per capita increases which dither women from participating in Agriculture, thus leading to a
reduction in Female Labour Participation. However, once Service sector starts picking up
which has better pay and lesser physical demands women once again re-enter the labour
force.
The Fixed Effect Estimators are given below for employment proportion of agriculture and
how it impacts Female Labour Force Participation.
flpr
empagr
i
Coef.
0.5208
05
Std.
Err.
0.667
09
t
0.78
P>t
0.437
[95%
Conf.
Interv
al]
1.8476
-0.80601
19
Exhibit1
hausman
remod femod
(b)
(B)
Remod
femod
pef
-0.0440956
0.22722
58
lgdpc
-0.030112
strict
-0.0208073
0.00926
08
0.00646
5
pop65
0.2481195
0.54705
44
lpoptot
0.00952
une
0.6986535
1.37911
2
0.33909
36
primsec
-0.6204767
0.25300
54
empagri
-5.888584
empser
-1.052758
empman
-1.967496
gendwa
ggap
0.3052527
ltertorg
-0.208462
lagtert1
fert
1.28E-08
-0.0167517
0.52080
45
1.35914
2
1.37042
2
0.14434
97
0.06749
15
8.41E09
-
(b-B)
Differe
nce
0.27132
14
0.03937
28
0.01434
23
0.29893
49
1.36959
2
1.03774
7
0.87348
2
6.40938
8
-2.4119
3.33791
8
0.44960
24
0.14097
06
4.43E09
-
sqrt(diag(V_b
-V_B))
S.E.
0.026384
0.0422746
.
0.3824955
.
0.1725852
0.3260118
0.5608185
0.1157595
.
0.108446
0.0803217
2.00E-08
0.0209693
govexp
0.4443363
chi2(1
4)
0.01566
28
0.14223
4
0.00108
89
0.30210
23
0.1792156
= (b-B)'[(V_b-V_B)^(-1)](b-B)
436.15
Prob>chi2 =
REFERENCES
0.0000
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expires=1440322902&id=id&accname=guest&checksum=D7BE04CBF39B41AC38776
E66D6DD1E64
ii http://www.oecd-ilibrary.org/docserver/download/5k46cvrgnms6.pdf?
expires=1440322902&id=id&accname=guest&checksum=D7BE04CBF39B41AC38776
E66D6DD1E64
iii Closing the gap article
iv Closing the gap article
v Closing the gap article
vi Closing the gap article
vii Closing the gap article
viii http://www.oecd.org/
ix https://data.oecd.org/emp/part-time-employment-rate.htm#indicator-chart
x http://www.oecd.org/els/emp/oecdindicatorsofemploymentprotection.htm
xi https://data.oecd.org/earnwage/gender-wage-gap.htm
xii http://www.investopedia.com/terms/p/per-capita-gdp.asp
xiii https://data.oecd.org/pop/population.htm
xiv https://data.oecd.org/pop/elderly-population.htm
xv https://data.oecd.org/pop/elderly-population.htm
xvi https://data.oecd.org/eduatt/adult-education-level.htm
xvii https://data.oecd.org/eduatt/population-with-tertiary-education.htm
xviii https://data.oecd.org/eduatt/adult-education-level.htm
xix https://data.oecd.org/pop/fertility-rates.htm
xx https://data.oecd.org/broadband/wireless-mobile-broadband-subscriptions.htm
xxi https://data.oecd.org/ict/internet-access.htm
xxii https://data.oecd.org/eduresource/public-spending-on-education.htm
xxiii https://data.oecd.org/eduresource/public-spending-on-education.htm