The Service Sector and Female Market Work: Europe vs US

Aggregate market hours differ dramatically across OECD countries. However, disaggregated by sex differences in market hours do not necessarily match aggregate market hour differences. Continental Europe has seen a smaller rise in formal female employment compared with the United States or Scandinavia. Additionally, Continental Europe has a substantially smaller service sector. These facts coincide with job requirements shifting from physical strength to intellectual abilities. This paper gives empirical evidence on why women predominately work in the service sector. Given the empirical evidence, a model where technical change favoring women, by increasing the service sector, drives female employment is developed. The key is households can produce a substitute for market services and women are, on average, less productive in sectors requiring more brawn, giving them a comparative advantage with respect to staying home and working in the service sector. Therefore, an economy that does not facilitate the movement of women into the labor market, by imposing high taxes, causes service production to remain at home. This reduces the demand for market services, which feeds back into low total hours worked by women (and the total economy). Subsidies to female employment can circumvent the high tax effect, but will lead to welfare loses.