Firm Size and Female Employment

Using firm and household-level data from India, we establish a positive association between relative female employment and firm size. We find that the proportion of female workers is higher in firms with a larger number of total workers (elasticity of 0.47) and greater output (elasticity of 0.1). We show that higher benefits and amenities offered by larger firms, like maternity benefits and paid leave, which are likely to be valued more by female workers, with no accompanying increase in the gender wage gap, is a plausible mechanism behind our findings. We then exploit a natural experiment in the amendment of labor laws across the Indian states, which increased the firm size thresholds for the applicability of regulatory compliances. Using a difference-in-difference estimation that accounts for the staggered amendments, we find an increase in the proportion of female workers by 13% in treated states vs. control states. One of the channels behind this increase is the accompanying increase in firm size by around 5% and welfare expenses per employee by 13%. At the same time, there is no change in the gender wage gap. Theoretically, we propose a task-based explanation that leads to greater relative demand for women in bigger firms and, consequently, higher investment by them in amenities valued by women leading to ambiguous effects on the gender wage gap. Our results show that policies that increase firm growth, which in turn increase the provision of amenities valued by women (without employer backlash), are likely to increase female employment.