Labor market dynamics and worker participation a macroeconomic perspective

Abstract

What prevents people from entering the labor market? Why do people choose not to work and stay out of the labor force? This is particularly perplexing in emerging economies where unemployment and social security benefits are few. It is essential to understand this, especially in the context of India, where more than 60% of the population are working-age, yet around 49% of them choose not to work. Among women, about 75% are out of the labor force. Active and productive participation of a sizable labor force in any country reaps high dividends. Conversely, low labor force participation rates (LFPR) can dampen this contribution. Understanding the causes that prevent women from participating in the labor force is key to boosting economic growth that benefits everyone. There is substantial literature that explores the causes of gender disparity in labor force participation, emphasizing demand and supply-side constraints for women entering employment contracts, including in India. A key factor that has been identified is the disproportionately more time women spend, relative to men, in household-related activities and caring for children and the elderly. As a consequence, this has a high opportunity cost of time for employment-related activities for women. Factors like gender-biased social and cultural norms, excessive burden of home production activities, fertility-related reasons, law, order, and safety concerns are the most common supply-side constraints to female labor market participation. On the labor demand front, women have limited job opportunities, given their education and skill levels. While there is a preponderance of papers delving into the social and the household level micro aspects, there are not many papers investigating the macro aspects of the labor market in India. newline newline The dissertation looks into this issue from a macro perspective, complementing the literature by looking at a combination of macroeconomic environment, labor market risk, household level factors, and time spent in home production.