Gender Discrimination and Growth: Theory and Evidence from India

“Woman’s participation in employment outside the home is viewed as inappropriate, subtly wrong, and definitely dangerous to their chastity and womanly virtue. When a family recovers from an economic crisis or attempts to improve its status, women may be kept at home as a demonstration of the family’s morality and as a symbol of its financial security.
(…) Well-off and better-educated families may send their daughters to school, but are able to afford the cultural practice of keeping women at home after schooling is complete.”
[“Women and the Economy in India”]
“In terms of skill development, women are impeded by their lack of mobility, low literacy levels and prejudiced attitudes toward women. When women negotiate with banks and government officials, they are often ostracized by other men and women in their community
(…). Government and bank officials have preconceived ideas of what women are capable of, and stereotypes of what is considered women’s work.” [“Chronic Hunger and the Status of Women in India”]
“There is a popular notion among many employers who feel that the men have a greater responsibility in supporting the family than the women and therefore have a greater right to the job.”
[“Report of the Survey of Women Workers’ Working Conditions in Industry”] 1
I. Introduction
Gender discrimination against women in the market place reduces the available talent in an economy, which has negative economic consequences. Gender discrimination takes many forms. Many social practices seen as normal from a religious or cultural point of view (which may have deep historical roots) leave women out of the economic mainstream. These social practices may have profound economic consequences because they do not allow society to take advantage of the talent inherent in women. This paper investigates these economic consequences. Although gender discrimination may have a myriad of other important consequences, including psychological, sociological, and religious, these are not discussed in this paper.
We develop a theoretical model that allows us to explore the economic implications of gender discrimination in the labor market. In the model, individuals are born with a given endowment of entrepreneurial talent and decide how much human capital to acquire, and whether to become managers or workers. Individuals can also engage in home production. Their choices depend on what everyone else is doing, because other people’s decisions affect the returns to investment in human capital and the relative returns to becoming a manager or a worker. We study three possible scenarios. First, we analyze the labor market equilibrium without discrimination. Second, we model gender discrimination as an exogenous exclusion of females from managerial positions. Our model shows how this discriminatory practice affects the labor market, the equilibrium wage rate, the allocation of talent across working and managerial positions, the investment in education by individuals (males and females), and economic growth. We show that discrimination tends to lower equilibrium wages for female and male workers, and to reduce investment in human capital by all females and by male workers. We also show that the average talent of managers is smaller in case of discrimination, which accounts for reduced innovation in the economy, and that the average productivity of 2 workers, which accounts for technology adoption in the economy, is reduced too. Both factors lower economic growth. The fact that the relative average earnings of females relative to males are lower due to occupational segregation matches empirical evidence about the gender wage gap.
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Third, we model gender discrimination as a complete exclusion of females from the labor market. That is, women can only engage in home production. In this case, the equilibrium wage rate—and, hence, the average talent and productivity—is the same as in the case of no discrimination. Nevertheless, this type of discrimination is inefficient, because per capita GDP is lower than without discrimination, as home production productivity is lower than that of production outside the home Economic growth is also lower because, even if the innovation and adoption dimensions are not affected, females optimally decide not to invest in human capital. Finally, we discuss why discrimination in the labor market of either type can be sustainable. In particular, the reason that gender discrimination in either managerial positions only or the overall labor market persists may be the existence of substantial transaction costs in marital bargaining, as is argued in the context of noncooperative (separate spheres) bargaining in the marriage market.
While gender discrimination against women in the labor market in developed countries is usually identified with differential wage rates, it is in developing countries that this discrimination appears to take the form of differential access to wage employment
(Collier (1994)). To test the implications of the model we take the particular case of
India. This is a relevant case for the current study since cultural reasons are there (as in many other countries) known to restrict women’s access to work (Kumar et al. (1999)). 1 Treiman and Hartman (1981) for instance using U.S. Census data estimated that as much as 35% of the pay gap was explained by occupational segregation. For more on occupational gender segregation, see Preston (1999),
Reskin and Roos (1990), and Strober (1984). 3
The existence of a great variability in gender sensitivity and customs among Indian states makes it suitable for the sort of econometric analysis that we pursue. Regions in northern India (which tends to be more patriarchal and feudal) have lower female labor force participation rates than southern regions (where generally women have relatively more freedom and a more prominent presence in society). Although the cultural restrictions women face are changing, women are not still as free as men to participate in the formal economy (Drèze and Sen (1995), Dunlop and Velkoff (1999), Nihila (1999)).
In order to make use of the variability over time among states, we then use panel data from sixteen Indian states over 1961-1991. We find that, as predicted by the model, the ratio of female-to-male managers and the ratio of female-to-male total workers are positively and statistically significantly related to total output per capita. Specifically, an increase of 10 percent in the female-to-male ratio of managers would increase per capita total output by 2 percent, while an increase of 10 percent in the female-to-male ratio of total workers would increase per capita total output by 8 percent. Our regressions control for female and male literacy rates, socioeconomic controls, political controls, and state and year fixed effects. Robustness is checked controlling for potential endogeneity of the gender composition of the labor force by using the ratio of prosecutions launched to the number of complaints received under the Maternity Benefits Act (1961) as instrumental variable. We also find that the negative effects of gender discrimination are more serious for particular sectors of the economy like the non-agricultural sector.
The paper is organized as follows. In Section II we discuss some background information. Section III presents some related literature. Section IV contains the model.
Section V turns to the empirical evidence, and Section VI concludes and discusses some policy implications.