Contributions to Higher Family Income

A LABOR DEMAND-SIDE MODEL

Consider a two-sector model in which both sectors use a combination of women and men to produce final output. If men and women are imperfect substitutes in production (for whatever reason) and the two sectors use different ratios of men and women, we can describe one as “female intensive” and the other as “male intensive.” Many trade models—including recent models with heterogeneous firms (for example, Melitz 2003) with two sectors that differ in factor intensity—conclude that exports of one sector (holding the other constant) will increase demand for the workers intensively employed in that sector. Bernard, Redding, and Schott (2007) demonstrate this for skilled and less-skilled workers.

Traded goods have significant overlap with manufacturing industries. Within manufacturing, apparel is usually considered female intensive and other industries (as a group) as male intensive. Among export-oriented industries, the apparel industry employs a high number of females (labor intensive) and is the most female-intensive manufacturing industry. This is supported by our analysis and country studies (Klasen 2019; Kucera and Tejani 2014). As such, the apparel industry is not only the logical choice to explore in more depth but also has historically been among the only options for employing large numbers of female workers.

Given that we can describe traded industries as female intensive in apparel and male intensive in other manufacturing, consider figure 1.3. It follows directly from

FIGURE 1.3 Model of FLFP Variation in Relation to Female and Male Contributions to Higher Family Income

FLFP Rising female wages Rising male wages Rising female wages

Family income

Source: World Bank elaboration. Note: In this model, as demand for women’s labor for apparel exports rises relative to men’s (left section), women’s wages rise, and women are more likely to enter the labor force and work more hours. But as men transition to industrial jobs with even higher wages (center section), those rising incomes are associated with less formal sector work by women in the same household. A country’s transition to a more services-led economy (right section) again increases both demand and wages for women, increasing the female labor supply. FLFP = female labor force participation.

equations (1.3)–(1.6) and demonstrates how female engagement in the labor market, along either the extensive or intensive margin, increases as (family) income increases. It is divided into three areas, depending on whose income is driving the increase in family income:

• In the leftmost section, a rise in apparel exports increases the demand for women relative to men, so the relative wages of women increase. As a result, women work more on either the intensive margin or the extensive margin.

• In the middle section, male wages are rising relative to female wages. Within the household, equations (1.3)–(1.6) show that the rise in male wages induces a fall in the female labor supply. As the country diversifies and the share of male-intensive exports increases, the relative wages of males increase. For example, the move from female-intensive apparel toward automobiles and machinery is often associated with a transition from female to male employment because, for whatever reason, those industries hire more men. FLFP rates fall because of the transition of men to industrial jobs with higher wages than agriculture—in turn having a strong income effect for women living with men. The rise in husbands’ incomes is hence associated with less formal sector work by wives.

• In the rightmost section, the economy transitions toward services, causing demand for women to increase again, and the higher wages in services result in a higher female labor supply. Over time, the change in one spouse’s labor supply in response to changes in the other’s earnings (and their own) can also change dramatically (Blau and Kahn 2007). The upward slope is explained by a strong substitution effect in which the rise in women’s wages is associated with more time spent in the formal labor market owing to a larger labor demand.

The point of this model is that exports can either increase or decrease female employment, consistent with the varied results for the feminization U hypothesis in the literature. For exports to contribute to rising female employment, they must increase the demand for females more than the demand for males, which implies that exports of female-intensive goods will only increase FLFP if the exports are a significant fraction of exports and economic activity. The model also shows that FLFP could rise if the relative weights of female and male contributions within the home move toward equality, which might be the case as women move from jobs to careers.

Of course, there are numerous paths to boosting family income besides the departure from the labor market of one spouse, often the female. Another is a dual income household where neither spouse exits the labor market—assuming there are adequate employment opportunities for both men and women. In this scenario, apparel exports provide job opportunities that bring women into the labor force and raise family income because there are two wage earners. Importantly, this scenario can also contribute to female empowerment because it enables women to contribute economically to their family and provides a sense of identity outside the home.