Explaining gender gap in labor force participation

Abstract

Gender gap in labor force participation has varied strongly between countries and time. Despite constant narrowing of the gap over the last 40 years, it still persists in practically everywhere. Closing the gender gap in participation should be seen as an important goal, as working and gaining income can empower women both within their households and in the society. It can also improve children's welfare and the efficiency of the economy as a whole. The purpose of this study is thus to assess both the theoretical and empirical literature conducted on the topic and to evaluate the role and importance of different factors with empirical analysis.

Changes in women's labor force participation, and consequently in the gender gap in participation, have been tried to explain in a multitude of ways. Models of labor market discrimination see the gap mainly as a result of employer discrimination which can take place in the form of dislike or using group proxies to maximize profits. Discrimination can lead to a situation where the disadvantaged group lowers its human capital investment, therefore perpetuating their position. Detecting discrimination empirically remains difficult. Classic models of labor supply see participation mainly as a matter of gaining sufficient wages. Although the narrowing of the gender gap in wages can historically explain some of the narrowing of the gap in participation, its impact seems to be in decline in the OECD countries. Household models explain labor market differences between men and women by either utility maximization for the whole household, or by the result of a bargaining game within the household. Participation choices at a certain point of time can have ramifications for the future participation, as well as on decisions concerning fertility or divorce. Government policy can also influence gender gap in participation through the system of taxation, parental leave policies or by subsidizing child care. Moving from a system of family taxation to individual taxation seems empirically the most efficient way of doing this. The advancement of technology in various fields has also served to improve women's participation by improving household productivity, control over lifetime employment and maternal health. Finally, recent research suggests that identity and culture are also important determinants of participation decisions.

Empirical work, based on country-level data provided by OECD and Eurostat, requires us to take both heteroskedasticity and autocorrelation into account when conducting regression analysis. Clustering standard errors for countries is the best way to do this in this case. Results from the regression analysis indicate that gender gap in primary education, availability of part-time work, government spending on day care, as well as marriage and divorce rates are the most important factors explaining variation in gender gap for a group of European countries between the years 1994 and 2006. Closing the gender gap in primary education by supporting women's educational attainment is the most important measure to be used in closing the gender gap in participation.