Why is the Labour Force Participation of Women Declining in India?

This paper explores the recent fall in female labour force participation and its socio-economic determinants in India. The major contribution of this paper is: to explore both micro- and macro-level factors which determine female labour force participation rate (LFPR); to examine the “U shape” female LFPR, by examining the likely income and substitution effects of the real wage increase, to identify the sub-sectors within manufacturing and service sectors that could create jobs for new female job aspirants and those older women displaced from agriculture in recent years; and thus to understand the conditions under which female LFPR could be raised. Using both macro-level and household survey (NSS) data, we find that the recent fillip in the process of structural transformation has pushed a large number of females out of agriculture. The growing mechanization in agriculture and rising capital intensity in manufacturing sectors together have limited the opportunity for females because of their low education and skill and due to other cultural constraints. We also found that the rise in real wages in rural areas and the consequent improvement in the standard of living has produced a strong negative income effect which outweighs the positive substitution effect and as a result female LFPR has declined substantially. However, with the massive increase in female enrollment in secondary and higher levels of education, it could be expected that the substitution effect of the increase in real wage would become stronger if appropriate measures are taken by the government, which are suggested.