Social Status, Economic Development and Female Labor Force (Non) Participation

This research provides a status-based explanation for the high rates of female labor force non-participation (FLFNP) and the sustained increase in these rates over time that have been documented in many developing economies. This explanation is based on the idea that households or ethnic groups can signal their wealth, and thereby increase their social status, by withdrawing women from the labor force. If the value of social status or the willingness to bear the signaling cost is increasing with economic development, then this would explain the persistent increase in FLFNP. To provide empirical support for this argument, we utilize two independent sources of exogenous variation Ð across Indian districts in the cross-section and within districts over time Ð to establish that status considerations determine rural FLFNP. Our status-based model, which is used to derive the preceding tests, is able to match the high levels and the increase in rural Indian FLFNP that motivate our analysis. Counterfactual simulations of the estimated model indicate that conventional development policies, such as a reduction in the cost of female education, could raise FLFNP by increasing potential household incomes and, hence, the willingness to compete for social status. The steep increase in female education in recent decades could paradoxically have increased FLFNP in India even further.