More women in the labor market: the uncertain impact on equality

Does gender equality in labor market participation bring real equality? This column reports evidence that in some developing countries, it can lead to an undesirable increase in inequality unless it is combined with specific measures targeted towards poor and vulnerable women. The regressive effect is only attenuated when levels of development and female labor force participation are relatively high.

In recent decades, developing countries have seen a rapid increase in the number of women taking an active role in the labor market. But promoting female labor force participation (FLFP) can produce undesirable distributional effects if it is not adequately combined with specific measures targeted towards poor and vulnerable women.

There is almost unanimous consensus that increasing FLFP levels is an important development outcome. But the translation of this general principle into effective policies becomes much more complicated.

Although there is an extensive body of research evidence on the ‘disequalizing’ impact of FLPF in developed countries, little has been written about the distributional consequences of increasing FLFP in developing countries. Acknowledging and quantifying these consequences would make it possible to tailor policies and mitigate any potentially damaging side effects on equality.

Our recent study suggests that promoting greater FLFP in developing countries can lead to greater inequality if not combined with measures targeting poor and vulnerable women. This regressive effect tends to be stronger in contexts where FLFP is low; it remains significant when FLFP is still comparatively low (for example, in Latin America); and it is only attenuated when FLFP and development levels are relatively high.

But it is worth noting that there is some heterogeneity in the latter case. Developed countries, such as France, Sweden, and the UK have followed very different trajectories, resulting from different labor market regulations, fiscal policies, and social norms.










Figure 1: FLFP and Gini index, all countries, by group.

With the objective of exploring the link between FLFP and inequality from different angles, we combine a macro approach looking at cross-sectional results with a micro (within countries) distributional analysis. Making use of household data for 18 developing and developed countries, this macro approach shows that the relationship between FLFP and inequality measured by the Gini index, follows an inverted U-shaped pattern.

As Figure 1 shows, along this curve it is possible to identify clusters of countries with common features and a similar gradient in the relationship between FLFP and inequality. Countries in the Middle East and North Africa, together with South Asian ones, tend to occupy the bottom left part of the curve characterized by low inequality and low FLFP. Latin American countries are around the turning point of the curve corresponding to high inequality, but also higher FLFP; whereas the Scandinavian countries are all concentrated in the bottom right part of the curve, showing low inequality and the highest FLFP in the developed world.

Results at the micro level confirm the general hypothesis on the inverted U-shape nature of the inequality/FLFP nexus. As is discernable in almost all countries, FLFP is lower in bottom deciles of the income distribution: thus, participation levels tend to grow with income.

India, Morocco, and Jordan all show greater FLFP leading to higher inequality. In Latin American countries, where inequality is already high, targeted policies towards women in lower deciles seem to be the best option to mitigate the trade-off between FLFP and increased inequality.

The FLFP impact becomes egalitarian when moving to the Euro-Mediterranean group. Whereas these countries have average FLFP levels not very far from those in Latin America, the socio-economic context contributes to different levels of inequality and a set of diverse policies. Returns on FLFP tend to be stronger in lower deciles than in the top ones: Spain, Italy, Greece, and France.

The higher returns on FLFP in the lower deciles might encourage greater participation of poorer women in the labor market. But it might also suggest the existence of a glass ceiling for women’s salaries. In these countries, women find it particularly hard to access top positions, and even if they do attain them, they might earn less than men.

FLFP has an egalitarian impact for both the Euro-Mediterranean group and Scandinavian countries. This might reflect a glass ceiling effect. But while in countries like Italy, Spain, or Greece, the glass ceiling has more to do with gender discrimination, in the Scandinavian countries, it is more related to the unintended consequences of very generous pro-FLFP policies. Other Northern European countries have lower levels of FLFP and less generous policies to encourage it.

Hence, increasing FLFP in many of these countries can produce undesired distributional effects if it is not adequately combined with measures targeted towards women in the lower deciles of the income distribution. Pro-FLFP interventions often implemented using public resources (for example, tax breaks or subsidies for companies employing women, financing of nurseries and schooling for children, targeted training programs for women, and financed parental leave schemes) can benefit women who are highly educated, working in the formal sector, and/or living in urban areas, thus contributing to increasing inequality.

The paradox, therefore, is that public policies intended to reduce a certain type of inequality will increase another type of inequality. Moreover, the success of these policies is very much conditioned by their capacity to overcome deep-seated prejudices and social norms.

For example, in the Middle East and North Africa, FLFP remains stubbornly low despite a rapid increase in women’s educational attainment. The difficulty of the task clearly requires broad coalitions, and the capacity to reach out across different social strata and constituencies.



Vasco Molini is Senior Economist in the Poverty Global Practice Group at the World Bank. He works on Nigeria and Ghana and his main scientific interests are inequality and income distribution in Africa. 

Federica Alfani is a development micro-economist currently working at the Poverty and Equity Global practice group at the World bank, based in the Tunisia Country Office.