Chapter 12. Equal Laws and Female Labor Force Participation
- Kalpana Kochhar, Sonali Jain-Chandra, and Monique Newiak
- Published Date:
- February 2017
- Christian Gonzales, Sonali Jain-Chandra, Kalpana Kochhar and Monique Newiak
When men and women are subject to different laws, women typically face institutions that are stacked against them. This chapter assesses whether these differences can explain the gap between male and female labor force participation, specifically whether such legal differences in treatment have an impact on female labor force participation rates over and above the widely discussed determinants of women’s participation, including demographic characteristics, educational gaps, and family policies.
Legal Rights: Developments Around the World
Our empirical analysis is enabled through use of the World Bank’s Women, Business and the Law (WBL) database, which focuses on how laws and regulations differentiate between men and women and, in turn, alter incentives to join the labor force.1 The WBL database is based on existing laws (de jure) and does not take into account how laws are put into practice (de facto). As a result, in the absence of comprehensive data on the practical application of laws across countries, this chapter relates existing legal restrictions to gender gaps in participation.
The WBL database provides detailed information on legal and regulatory barriers to women’s economic participation and entrepreneurial activity in 173 countries. It also focuses on seven indicators of gender-related differences in the legal and institutional framework:
Accessing institutions—Women’s legal ability to interact with public authorities (for example, the acquisition of national identity cards)
Using property—A woman’s legal rights to own, control, and inherit property
Getting a job—Restrictions on women’s work (for example, restrictions on night shifts for women)
Providing incentives to work—Tax considerations (such as tax credits and deductions available to women relative to men)
Building credit—Access to finance
Going to court—Access to small claims court and the weight provided to a woman’s testimony
Protecting women from violence—The strength of laws to prevent violence against women
Some countries have numerous legal restrictions, with 30 countries having in place 10 or more restrictions on women’s participation. Only 18 economies were found to have no legal differences in the treatment of economic rights for men and women. In contrast, the WBL data suggest that almost 90 percent of the economies have at least one restriction on economic activity by women.
The nature of the restrictions varies across countries. In 18 countries, husbands can prevent their wives from working, and laws or regulations in 100 countries restrict nonpregnant and nonnursing women from pursuing the same economic activities as men. Other restrictions impede women’s property rights and thereby their access to finance. Specifically, the World Bank and International Finance Corporation (IFC) (2015) show that in countries with property rights more favorable to women, there is greater financial inclusion of women (10 percentage points more bank accounts owned by women). Gender-based differences in property rights also make it more difficult for women to deploy immovable property as collateral in order access credit.
There has been a steady easing of legal restrictions against women and thereby a gradual leveling of the playing field in most countries (Figure 12.1). For two WBL indicators—accessing institutions and using property—the data set provides detailed information for 100 economies spanning the period from 1960 to 2010 (see Chapter 2 for details on the questions covered). The data show that more than half the restrictions in accessing institutions and using property in place in 1960 had been removed by 2010. In particular, 280 changes took place in the gender-based legal framework, mostly in the areas of introducing a nondiscrimination clause based on gender, female property rights, and the legal ability of married woman to get a job and pursue a profession. The restriction on married women working (for example, needing their husbands’ permission) was removed in 23 countries (for example, by Turkey in 2001 and in South Africa and Guatemala in 1998). Restrictions on married women opening a bank account were relaxed in 20 countries, including by Mozambique in 2004 and Lesotho in 2006.
Figure 12.1.The Evolution of Legal Gender-Based Restrictions, 1960–2010
Source: World Bank, Women, Business and the Law database.
The progress has continued in the recent years, with several countries passing or changing their laws in favor of more gender inequality since May 2013. For instance, Egypt’s new constitution features “sex” as a new category in its nondiscrimination clause (World Bank and IFC 2015). In Belarus, the number of professions in which work by women is prohibited was reduced from 252 to 182. In Nicaragua and Togo, men and women now have equal rights to be the head of household. In Kenya, a new law on matrimonial property gives both spouses equal rights to administer joint property. But despite this progress, there are still many gender-related restrictions in place, particularly in the Middle East and north Africa, sub-Saharan Africa, and south Asia.
The continued prevalence of gender bias in jurisdictions is confirmed by rankings from related databases as well (Figure 12.2). One of these is the Social Institutions and Gender Index (SIGI) of the Organisation for Economic Co-operation and Development (OECD), which is highly correlated with a number of subcomponents of the WBL, including equal inheritance rights and the rights of women to get a job or pursue a profession. Similarly, country rankings in the World Economic Forum’s Global Gender Gap Index are highly correlated with those in the WBL and SIGI databases (WEF 2014).
Figure 12.2.Gender-Based Restrictions across Countries, 2014
Source: Organisation for Economic Co-operation and Development, Social Institutions and Gender Index (SIGI). http://www.genderindex.org/.
Note: Numbers in the map indicate SIGI ranking (1 = very low degree of discrimination in the lightest color, 5 = very high degree of discrimination in the darkest). Numbers inside countries denote countries’ rank among all assessed countries (1 = best).
Legal Restrictions and Female Labor Force Participation
The data suggest a strong relationship between legal restrictions and labor market participation rates for women across countries. Figure 12.3 shows that, for a sample of almost 100 countries, more equitable property rights and more equal rights to obtain a job or pursue a profession are associated with lower gender gaps in labor force participation, without significantly affecting male participation rates. Similar results hold for the association of labor force participation gaps with other economic rights.
Figure 12.3.Gender Gaps in Economic Participation and Legal Restrictions, 2010
Sources: World Bank and International Finance Corporation 2013; World Bank, World Development Indicators database; and IMF staff estimates.
Notes: FLFP = female labor force participation; MLFP = male labor force participation.
Panels 2 and 4 in Figure 12.3 indicate that smaller participation gaps in countries with no gender-based legal restrictions compared with countries with legal restrictions are driven by higher female labor force participation. There is considerable variation in female labor force participation across countries, but averages are higher and the range is narrower in countries where there are no legal differences for men and women. For instance, in countries with unequal inheritance rights for girls and boys (panel 2) female participation rates vary from 23 percent to almost 60 percent, as opposed to countries with equal property rights, where female participation is in the narrower range of 40 to 60 percent (the midpoint is higher in the latter case). This suggests that other important cross-country characteristics, such as demographics, preferences, and other policies, are additional explanatory factors that also play an important role.
Legal changes have also on average been associated with marked increases in female labor force participation over time. Figure 12.4 plots the median female labor force participation rates for countries in which equality of men and women was constitutionally granted (panel 1). The year of the change is shown in the figure as T = 0. It shows that, in 50 percent of the countries where equity was legally granted, female participation increased by some 5 percentage points in the following five years. Such large increases in female labor force participation are likely to have a significant effect on economic growth. Similar results hold for other rights, such as the right to open a bank account (panel 2).
Figure 12.4.Changes in Female Labor Force Participation Rates after Selected Legal Changes
Sources: World Bank, Women, Business and the Law database; and IMF staff estimates.
In some countries, several favorable changes in laws made during the course of a year have been found to have had strong effects on female labor force participation (Box 12.1). For example, in 1996 Namibia passed the “Married Persons Equality Act,” which triggered six changes in the WBL classification. In particular, the law equalized property rights for married women and granted women the right to sign a contract, head a household, pursue a profession, open a bank account, and initiate legal proceedings without their husbands’ permission. In Peru, customary law was abolished as a valid source under the Constitution in 1993 and invalidated if it violated the nondiscrimination clause. Malawi introduced similar laws invalidating customary law in 1994, combined with a nondiscrimination clause and equal inheritance rights for surviving spouses. Namibia and Peru experienced substantial increases in female labor force participation rates of 10 and 15 percentage points, respectively, in the decade that followed those changes (Figure 12.4, panels 3 and 4). In Malawi, female labor force participation rates increased further from already high levels.
Drivers of Female Labor Force Participation: Related Literature
The theoretical and empirical literature on female labor force participation is vast (Box 12.2). This overview does not aim to be exhaustive but rather to provide a short summary of the main areas of work related to the current study. Specifically, it touches upon demographic factors, policy choices, institutions, legal variables, and signaling effects that have been associated with changes in women’s economic activity.
Box 12.1.Constitutional Reforms in Kenya
The 2014 Women, Business and the Law report by the World Bank and International Finance Corporation (2015) points to constitutional reforms in Kenya in 2010 as leading to changes equalizing women’s legal status. Kenya’s constitution has prohibited gender discrimination since 1997. However, customary law—traditional rules governing personal status and communal resources—was exempt from this nondiscrimination clause and prevailed in a number of areas, including inheritance and property rights afforded to women. The main reform in 2010 entailed making customary law subject to nondiscrimination and equal treatment. Until this change, women faced discrimination in matters related to personal status, inheritance, and property rights. In addition, the new constitution sets quotas for the representation of women in the parliament that were expected to be implemented by 2015.
Such constitutional reforms can lead to increases in female economic participation. The Women, Business and the Law report notes that in almost a third of sub-Saharan African countries, customary law prevails even if it violates constitutional provisions on gender-based discrimination. This suggests that there is significant potential to institute constitutional reforms similar to those enacted in Kenya to further level the playing field. This is turn could lead to sizable increases in female economic participation.
Box 12.2.Theoretical Underpinnings of Female Labor Supply: A Selective Literature Survey
Female labor supply is often modeled using the framework of the time allocation model (Becker 1965), which posits that women make their labor supply decisions considering not only leisure and labor but also home-based production of goods and services (including caring for children). As Jaumotte (2003) points out, working for a wage is chosen only if earnings at least make up for the lost home production (and the associated costs), implying a higher elasticity of female labor supply to wages.
Most studies emphasize the importance of education in models of female labor supply. A number of studies also include wages as a key in modeling female labor supply models (Heckman and MaCurdy 1980). Fernandez and Wong (2014) develop a dynamic life-cycle model with incomplete markets and risk-averse agents who differ in their educational endowments and make work, consumption, and savings decisions. They find that, in addition to the above factors, divorce risk has a large impact on married women’s participation rates.
Eckstein and Lifshitz (2011) estimate a dynamic stochastic female labor supply model with discrete choice (contained in Eckstein and Wolpin 1989) and find that changes in education (accounting for a third of the increase in female employment) and wages (explaining about 20 percent) play a large role in explaining female employment. They also formulate a new framework that models intrafamily dynamics (using dynamic stochastic games) and relate it to the household’s labor supply decision.
Fertility has been shown to significantly affect female labor force participation. For individual countries, there is evidence of a negative relationship between fertility and women’s participation in the labor force. For instance, Bloom and others (2009) find that the number of births is significantly negatively related to women’s labor supply, with each birth on average decreasing women’s labor supply by almost two years during a women’s reproductive life. Mishra and Smyth (2010) find that a 1 percent increase in the fertility rate results in a 0.4 percent decrease in female labor force participation rates in the advanced economies of the Group of Seven. While there is a negative relationship between the variables at the individual country level, there is a positive relationship between fertility and female labor force participation at the cross-country level. Using data from the OECD countries, De Laat and Sevilla-Sanz (2011) explain this puzzle—namely a negative relationship at the individual country level but a positive one across countries—by including men’s contribution to home production. They find that women living in countries where men participate more in home production are better able to combine having children with working, leading to greater participation in the labor force at relatively high fertility levels. The trade-off between family and work is also reflected in a negative correlation between female labor force participation and marriage rates.
Educational attainment for women is positively correlated with female economic participation. Calibrating a dynamic model of labor supply, Eckstein and Lifshitz (2011) find that one-third of the increase in female employment during the last century in the United States can be attributed to education. In an empirical exercise, Steinberg and Nakane (2012) show that a 1 standard deviation increase in the education level in OECD countries is associated with a 3 percentage point increase in female labor force participation.
The scope for increasing female labor force participation through tailored and country-specific fiscal policies is significant (Aguirre and others 2012; Duflo 2012; Revenga and Shetty 2012; Sen 2001; Thévenon 2013; Kalb 2009). On the revenue side, tax credits or benefits for low-wage earners can stimulate labor force participation, including among women. By reducing the net tax liability or even turning it negative, tax credits increase the net income gain from accepting a job. Such credits are usually phased out as income rises. Policies can also build on the fact that female labor supply is more responsive to taxes than male labor supply (IMF 2012). For example, a switch from family income taxation to individual income taxation that reduces the tax burden for (predominantly female) secondary earners can increase female labor force participation, whereas it would affect the less-tax-elastic male labor supply to a smaller extent.
As for expenditure policy, better access to comprehensive, affordable, and high-quality childcare frees up women’s time for formal employment (Gong, Breunig, and King 2010). The elasticity of female labor supply with respect to the price of childcare has been shown to range from –0.13 to –0.2. Thus, reducing the price of childcare by 50 percent could be associated with an increase of 6.5 to 10 percent in the labor supply of young mothers. Other studies (Ghani, Kerr, and O’Connell 2013; Norando 2010) document the importance of public infrastructure to boost the participation of women in the labor force. Norando (2010) finds that a large part of the difference in female labor force participation rates in 1990 between the United States, on the one hand, and Brazil and Mexico, on the other, can be explained by the availability of basic infrastructure (electricity and running water). Ghani, Kerr, and O’Connell (2013) note that inadequate infrastructure affects women’s participation more than that of men because women are more often responsible for household activities.
The availability of maternity leave can encourage greater participation, but its effects can be nonlinear. In other words, while properly designed family benefits can help support female labor force participation (Jaumotte 2003), long periods outside the labor market also risk reducing skills and earnings (Ruhm 1998; Edin and Gustavsson 2008). Independently of its duration, paid parental leave appears to have a negative effect on the gender gap in earnings of full-time employees (Thévenon and Solaz 2013). As parental leave is mostly taken by women, it can indirectly encourage employer discrimination and discourage employers from hiring women for positions that require costly qualification and training periods (Mandel and Semyonov 2005). This implies that policies that encourage greater parity between paternity and maternity leave could support a more rapid return to work among mothers and help shift underlying gender norms (World Bank 2012).
Gender-based legal restrictions impede women’s empowerment and thus their economic participation. In addition, weak or restrictive laws related to family, gender-based violence, and economic opportunities are most likely to impede women’s empowerment, with a lack of gender parity in business and institutional laws strongly associated with lower levels of economic participation by women (Klugman and Twigg 2012; World Bank and IFC 2013).
Social institutions associated with more gender equality have been shown to be strongly positively related with better development outcomes and living standards. More equal property rights for men and women stimulate investment by eliminating inefficiencies, are associated with higher GDP per capita, and can shift the composition of public spending related to health, education, and children (Doepke, Tertilt, and Voena 2012). Using information from the OECD’s Social Institutions and Gender Index, Branisa and Klasen (2013) show that the existence of institutions that perpetuate gender inequality is associated with lower female secondary education, higher fertility rates, higher child mortality, and a greater perception of corruption in the respective country. They propose, among other things, the passage of antidiscrimination laws or the introduction of programs in support of women and girls.
Women in leadership positions may also increase female labor force participation by providing role models for other women, and by combating stereotypes. The introduction of quotas for women in political positions has been shown to increase women’s political participation and votes for women. In Rwanda, the constitutionally guaranteed quota of 30 percent of women in Parliament has been filled and indeed exceeded (Klugman and Twigg 2012). By weakening stereotypes about gender roles, the use of quotas for women in leadership positions in Indian village councils has led to a greater likelihood of women standing for elected positions in these councils. Also, once women are in charge, they can significantly change public attitudes toward women and can raise the aspirations parents have for their daughters and the aspirations teenage girls have for themselves (Beaman and others 2009). The introduction of female quotas in Italy in the 1990s tripled the probability of voting for women (De Paola, Scoppa, and Lombardo 2010) and increased female representation in politics (Bonomi, Brosio, and Di Tommaso 2013). Kang (2013) found that the success of gender quota laws in Niger depended on the design of the law, the institutional context, and having female activists monitoring its application.
Restrictions and Female Labor Force Participation: Empirical Results
Gender-based legal differences help explain female labor force participation gaps in a sample of OECD countries (Table 12.1; for the econometric details see Annex 12.1). The results confirm that a combination of demographics, policies, and legal rights can explain the dynamics of the gender gap in labor force participation in the OECD. In addition, legal rights—such as equal property rights for married and unmarried women and women’s rights to head a household, pursue a profession, open a bank account, or sign a contract and initiate legal proceedings—are strongly associated with lower gender gaps in OECD countries. In particular, the results highlight the following:
(Male minus female labor force participation, percent)1
|Unmarried, property rights||–3.105***|
|Married, property rights||–3.160***|
|Married, joint titling||–1.797*|
|Be head of household||–2.373***|
|Get job/pursue a profession||–2.313**|
|Open bank account||–3.160***|
|Initiate legal proceedings||–3.160***|
|Number of observations||574||484||484||484||484||484||484||484||484||484|
Three-year seasonal differences were taken to make series stationary.
Log of children instrumented with its lag.
Demographics and education—Expanding the sample in Steinberg and Nakane (2012) to include more recent years and substantially increasing the number of countries covered by the panel qualitatively confirms results in earlier studies vis-à-vis demographic variables such as family size and level of education. The findings show that education has a significant positive effect on female labor force participation and thereby shrinks the gap, whereas increasing family size has the opposite effect.
Policies—Family-friendly policies such as maternity leave significantly contribute to reducing gender gaps in labor force participation in OECD countries.
Legal rights—The lack of equal economic rights significantly contributes to explaining the variation of labor force participation gaps across countries and over time. In particular, the rights of married women to open a bank account, sign a contract, or initiate legal proceedings without their husbands’ permission are associated with a statistically significant decrease in the gender gap in labor force participation. The removal of most of the legal restrictions individually leads to a reduction of between 2–3 percentage points in the gender gap in labor force participation.
Legal restrictions also strongly hinder female labor force participation in emerging market and developing economies (Table 12.2; for the econometric details, see Annex 12.1). Our results show that legal rights—such as guaranteed equality, equal property, and inheritance rights, as well as other economic rights (for example, being allowed to head a household)—are associated with smaller gender gaps in labor force participation in a statistically and economically significant way. For example, guaranteed legal equality reduces the gender participation gap by 1.3 percentage points. The larger variation in legal rights in the larger data set also allows us to explore the effect of removing several legal restrictions at the same time. In particular, while each of the rights is important individually, the joint effect of guaranteed equity, more equal inheritance rights, and the legal right of women to head a household is associated with a larger decline in gender gaps in labor force participation of around 4.6 percentage points.
(Male minus female labor force participation, percent)1
|Married, property rights||–0.968*||0.176|
|Daughters, inheritance rights||–2.531***||–1.919**||–2.331***|
|Spouses, inheritance rights||–1.646**||–0.641|
|Be head of household||–1.171**||–0.907**||–0.942*|
|Number of observations||1251||1262||1262||1269||1277||1277||1243||1261|
Three-year seasonal differences were taken to make series stationary.
Log of fertility instrumented with its lag.
Conclusions and Policy Recommendations
There has been progress in removing gender-based legal restrictions, but the playing field is far from level. The ideal of equality in terms of economic opportunity remains elusive in some countries. A number of legal restrictions that impede female labor force participation remain in place which in turn hampers productivity and sustainable and inclusive growth. Indeed, although greater gender equity is in itself an important development goal, such restrictions also impose additional economic inefficiencies because they restrict access to productive resources and economic choice and prevent the efficient allocation of resources. And, while this chapter focuses on legal restrictions that affect women’s economic activity, there are other restrictions with serious social implications that should be addressed, such as the way laws treat violence against women.
Liberalization of different legal restrictions may yield benefits over different time horizons. For example, granting the right to pursue a profession could yield relatively fast gains, while other reforms, such as equalizing inheritance rights, may work through indirect channels and have effects on a range of economic activity. Policies should strive to eliminate the various remaining legal restrictions that prevent women from participating in the labor force, restrictions that range from preventing women from opening bank accounts to discriminatory property rights. Among the variety of gender-related legal rights, constitutionally guaranteed equity between men and women should be the absolute minimum, because it can have important catalytic effects on other reforms. To remove legal restrictions more broadly, countries should strive to guarantee legal equality to women in all dimensions.
This chapter does not take a normative stance on women’s participation in the labor force but advocates a level playing field. Removing the obstacles that prevent women from reaching their full economic participation would give them the option to become economically active should they so choose. Increasing female economic participation in turn would lead to higher growth and more favorable development outcomes. Nevertheless, it should be emphasized that the policy recommendations with respect to creating equal opportunity should be considered against the backdrop of countries’ broadly accepted cultural and religious norms.
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For a set of Organisation for Economic Co-operation and Development (OECD) countries and a wider global sample, including advanced, emerging market, and developing economies, the panel regressions are estimated as follows (for a detailed description of data sources, see Gonzales and others 2015):
in which Gapit refers to the male labor force participation rate minus the corresponding rate for females in country i at time t.
Demographicsit includes the fertility rate, and the number of children are instrumented with lags of itself to mitigate endogeneity.
Educationit refers to years of schooling from the Barro-Lee database.
Policyit refers to the number of weeks of maternity leave provided.
Legalit includes the various legal restrictions contained in the World Bank’s Women, Business and the Law (WBL) database, as described in the paper.
For the OECD and global sample, country fixed effects are included in the regressions. Country fixed effects control for country-specific drivers of gender labor force participation gaps that are not explicitly controlled for in the regressions and if omitted could lead to misleading results. The Hausman test indicates that a fixed effects model is appropriate for both sets of panel regressions.
As the labor force participation series appear to exhibit a time trend, tests for panel unit roots are carried out and show that labor force participation for both males and females are integrated of the order 1. Differencing male and female labor force participation series results in a I(0) or stationary series. We also difference other nonstationary variables including fertility and education.
We test for whether time dummy variables need to be included to control for the time trends. In the F test, we fail to reject the null that the coefficients for all years are jointly equal to zero, and therefore no time fixed effects are required.
We also conduct a number of robustness checks in which we run regressions with a number of different specifications: (1) including GDP per capita as a control variable; (2) including lags of the WBL variables, since the effects of legal changes could take time to reflect in labor force participation; (3) using female labor force participation instead of the gap as the dependent variable; (4) including a number of other variables such as childcare spending, wage gap, maternity leave, family allowance, tax wedge, and part-time employment as controls for the OECD sample; (5) including health and education spending as controls for policy variables in the emerging market and developing country sample; and (6) using the birth rate instead of fertility rate. While some variables from the baseline regression were not significant in some of the alternative specifications, a number of the WBL variables were always significant, indicating that the results are robust to changes in econometric specification.
We also used policy variables as explanatory variables in the regression. However, in the case for the OECD sample not enough variability in the data remains after the inclusion of these variables due to a reduced sample size, and there is insufficient data covering family policies for emerging markets and low-income countries.