To Prosper, India Must Close Its Gender Employment Gap

Kanika Mahajan
Kanika Mahajan is Associate Professor of Economics at Ashoka University.

NEW DELHI – While female workforce participation consistently lags behind men’s globally, there are deep regional disparities, with the largest gender employment gaps found in the Middle East and North Africa (MENA) and South Asia.

India is a striking example of this dynamic. Among women aged 25-60 in rural areas, the labor-market participation rate dropped sharply from 54% in 1980 to 31% in 2017 (National Sample Survey (1980) and Periodic Labor Force Survey (2017)). In urban areas, the decline has been less dramatic, from 26% to 24%. Meanwhile, male employment rates remained relatively stable, further widening the gender gap in the world’s most populous country.

Given the well-documented economic benefits of higher female employment, Indian policymakers are eager to reverse this trend. Projections suggest that increasing the female workforce participation rate by just ten percentage points could increase India’s GDP by 16%. In fact, improving female employment rates worldwide could add $12 trillion to global GDP.

To encourage women to enter the labor market, policymakers must first understand the root causes of India’s low female workforce participation rate. Early research points to a range of supply-side barriers, such as the U-shaped relationship between income and education, the unequal division of domestic labor (particularly childcare and eldercare), and social norms that discourage women from working outside the home. The problem is also exacerbated by the preference for non-working women in the marriage market, limited mobility, inadequate skills training, and safety concerns at work and in public spaces.

Many of these barriers are rooted in household dynamics, but governments can still play a pivotal role in addressing them. One way is to support export-oriented industries. While supply-side constraints affect economies across MENA and South Asia, countries like Bangladesh have experienced a rise in female employment thanks to growing demand from export-driven sectors. This mirrors the experience of Southeast Asian countries, where export-oriented manufacturing has led to a surge in women entering the labor market.

History also offers valuable insights. In the United States, the female employment rate rose dramatically in the space of 100 years, from less than 5% in 1890 to more than 60% in 1990. The critical turning point came during World War II, when labor shortages led to higher wages, greater acceptance of women in traditionally male-dominated jobs, and the emergence of alternative care options.

In India, much of the policy debate has focused on the demand-side barriers that women face in the job market. Labor demand has not been favorable to Indian women, as mechanization in the agriculture sector reinforces gender disparities while the lack of decent jobs and the dominance of small firms – many of which fail to provide essential amenities like maternity leave and child care – limit women’s work opportunities.

The impact of such barriers is compounded by insufficient support for female entrepreneurship and widespread employer discrimination against married women and mothers. Moreover, well-intentioned regulations like the Maternity Benefit Act and the POSH Act, intended to increase the number of women in the workforce, also raise the cost of hiring them, inadvertently creating additional obstacles.

Recognizing that low female employment impedes economic growth, the Indian government has allocated an unprecedented 6.5% of its latest annual budget to programs promoting gender equality in housing, pensions, education, and health care. The budget also boosts funding for initiatives aimed at improving women’s safety, mobility, and caregiving options, such as establishing targeted skills-training programs, hostels, and child-care facilities for working women, and expanding market access for enterprises run by women-led, community-based self-help groups.

But the real test will be the quality and reliability of these services. If child-care facilities provide substandard care, or hostels fail to ensure women’s safety, participation will remain low. Moreover, skills programs in India have had little success outside major cities. A recent study in Uttar Pradesh found that just 11% of graduates of industrial training institutes were able to secure employment. International studies also suggest that insufficient job opportunities may limit the impact of skill-building initiatives. Creating quality jobs offering higher wages is crucial for supply-side measures to be effective.

When men struggle to find jobs, integrating women into the workforce becomes even more challenging. Notably, nearly 12% of Indian men aged 20-35 in urban areas who completed schooling were unemployed in 2022. For this reason, the government’s latest budget includes several initiatives to boost employment. One such program aims to encourage internships, with the government providing firms a monthly allowance of ₹5,000 ($60) and offering labor-market entrants a one-time wage-assistance subsidy of up to ₹15,000. Employers will also be eligible for up to ₹3,000 per month for two years following every new hire, offsetting their social-security contributions. Other measures to expand small firms’ access to credit markets include doubling the limit for small loans by public-sector banks to micro enterprises from ₹1 million to ₹2 million.

But the effectiveness of some of these measures remains uncertain, given that top firms are likely to hire the most skilled candidates even without government intervention. Employers will increase hiring only when the benefits outweigh the costs. As long as burdensome regulations, inflexible labor laws, infrastructure bottlenecks, and unfavorable industrial and trade policies persist, job creation will continue to stagnate. By fostering a business-friendly economy – one that simplifies firm entry and exit and removes barriers to growth – India could both empower women and unlock its economic potential. It’s a lesson many countries cannot learn soon enough.

Kanika Mahajan is Associate Professor of Economics at Ashoka University.