Market size and rural women’s employment
The low and declining labour force participation rate (LFPR) of women constitutes one of the biggest challenges facing the Indian economy. International Labour Organization (ILO) data for 2019 estimated LFPR of women aged 25 and over in rural India at 25.6%, a rate that contrasts starkly with that of 43.1% for this same demographic group in Bangladesh. Data from the National Sample Survey Office (NSSO) revealed that female LFPRS declined by 8-10% points between 1999-00 and 2011-12. Despite reports of a slight improvement, will these rates decline even further in the years to come as the economy struggles to recover from the pandemic?
Conventional academic wisdom relates declining female LFPRS in the early stages of a country’s growth to a lack of “suitable” nonagricultural jobs for the rapidly growing numbers of educated women. This suggests that the problem is not a failure of education but, on the contrary, a consequence of improvements in female schooling that have outpaced the growth of the non-agricultural economy.
An alternative explanation comes from economic theories of the importance of market size for economic growth. These theories note that households purchase non-agricultural goods only after their incomes exceed a certain threshold. Consequently, the growth of this sector requires markets that are sufficiently large, not in numbers, but in income.
For tradeable goods produced by the agricultural and manufacturing sectors, the market is global. However, for the service sector, the sector of overwhelming importance to the economy, it is the purchasing power of the local market that matters. The growth of food outlets, retail stores, and the services of tailors and beauticians require a sufficiently large concentration of rural consumers within commuting distance. It is only in large markets that women’s wages are high enough to shift the balance between domestic tasks and market work. From this perspective, India’s economic geography — the distribution of population size and schooling over space — is an important determinant of LFPRS. Two features of this geography stand out.
The first is the very small size of villages in north India. Confining our attention to Uttar Pradesh, Bihar, Jharkhand, Chhattisgarh, Odisha, Madhya Pradesh, West Bengal, Maharashtra and Rajasthan, 59% of villages have a population size of less than 1,000 (Census 2011). This small size — just 200 households — suggests the impossibility of developing viable non-agricultural businesses if transactions occur only within village boundaries.
But high population density and significantly improved road infrastructure imply that villages are frequently within commuting distance of each other, with markets extending beyond village boundaries to neighbouring villages. Indeed, geo-spatial data reveals that 83% of villages in these nine states are within 25 kms of a village with a population of 5,000 or more.
There is a second distinguishing feature of India’s economic geography, which likely holds the answer to low LFPRS — low schooling attainment in rural areas and the lack of correlation between schooling attainment and village size. For the states listed above, data on the average schooling of every village from the 2011 socio-economic caste census (SECC) reveals average schooling years to be just 3.7 years. A 2019 survey designed to evaluate the National Rural Livelihoods Programme, a programme implemented in the poorest blocks of these states, estimates that the average adult has just four years of schooling.
Even more striking than these low levels is their lack of correlation with village size. The SECC data for these nine states disclose that average years of schooling in villages with a population of 10,000 to 20,000 is the same as in villages with a population of 500-1,000. India’s large villages differ from small ones primarily in population size, not in mean levels of schooling. In contrast, in most developed economies, the correlation between population concentration and schooling attainment is positive and strong.
These differences help explain patterns of correlation between population concentration and LFPRS. Thomas Malthus, in his influential work, predicted a negative correlation between population and income growth in agrarian economies, arguing that population growth reduces agricultural productivity and, hence, employment opportunities. The reversal of this hypothesis, evident in the positive correlation between population concentration and LFPRS in today’s developed economies, reflects higher schooling in population-dense areas. These increases improve productivity and, equally importantly, increase the demand for services through their impact on incomes, fuelling the growth of the non-agricultural sector and the diversification of the economy and propelling women into the labour force.
In contrast, the lack of a positive correlation between schooling attainment and village size in rural India is more consistent with a Malthusian world than a modern economy, with high concentrations of population differing from smaller villages only in numbers, not in schooling. Without increases in schooling, the market for non-agricultural products remains low, even in large villages.
Thus, rather than declining LFPRS in rural India being a consequence of achievements in women’s education, they reflect, in part, past failures to achieve universal elementary schooling. The costs of neglecting public schooling and health, costs that are all too apparent, all too often fall on women. India’s new National Education Policy rightly stresses the importance of improving schooling facilities and reducing dropout rates. Ensuring these objectives holds the key to higher LFPRS for women.
INDIA’S NEW NATIONAL EDUCATION POLICY STRESSES THE IMPORTANCE OF IMPROVING SCHOOLING FACILITIES AND REDUCING DROPOUT RATES. ENSURING THESE OBJECTIVES HOLDS THE KEY TO HIGHER LFPRS FOR WOMEN