Services Trade and the Gender Wage Gap: The Case of India

India’s female labour force participation rate is less than half of the global average and the gender wage gap is substantial. With higher tertiary graduation rates and excelling in frontier skills for the future, women constitute a talent pool that India can ill afford to leave underutilized. Although still far from gender parity, the services exporting sectors are an example of job creation where women can leverage their skills.

Indian women are marginalized in the labour market

Women’s labour force participation rate in India is among the lowest in the world (Figure 1). Furthermore, the female labour force participation rate has been on a declining trend since 1990 when it stood at around 30% (Figure 2).[1] Finally, only around 9% of employment in India is in regular salaried jobs, and of those, women hold 18%.[2]

Figure 1. Female labour force participation rate,                Figure 2. Female labour force participation rate,
international comparison, 2019
.                                              India, 1990-2020

Source: ILO                                                                                     Source: World Bank Gender Data Portal

Comparable and up-to-date data on the gender wage gap is not available, but the ILO found that the gender wage gap was 34% in India compared to the global average of 23% in 2015, and that the gap has narrowed somewhat over time.[3] The World Economic Forum ranks India 149th out of 153 countries on the Economic Opportunity and Participation subindex in its Global Gender Gap Index for 2020.[4]

Indian women do relatively well in high-skilled jobs in the ICT sector

Although India performs dismally on female economic opportunity, there are some brighter spots that could bode well for the future.

Figure 3. Share of women by professional cluster, 2019

First, women are now overrepresented in education at all levels from primary to tertiary.[5]Second, the share of women in professions that the World Economic Forum together with Linkedin identified as having the best future growth prospects is relatively high (Figure 3). Amidst the 20 countries included in the analysis, India ranks among the top three in terms of share of women in cloud computing and engineering.[6]

 

 

 

Source: World Economic Forum

Trade in services has helped Indian women find good jobs

During the past few decades India has become one of the major services exporters in the world. As is well known, opening to international trade sets in motion a reallocation of resources, including workers, from sectors of comparative disadvantage to sectors of comparative advantage.

In a recent study we calculated the average gender wage gap for sectors of comparative advantage and disadvantage, distinguishing between goods and services sectors. The manufacturing sector with the strongest comparative advantage is textiles and clothing, while the manufacturing sector of the strongest comparative disadvantage is manufacture of computers, electronics, and optical products. In services, the strongest comparative advantage is found in architecture and engineering services, computer services, and retail trade, while most other services sectors are of comparative disadvantage. We found no systematic difference between sectors of comparative advantage and disadvantage as far as the gender wage gap is concerned.

We next estimated the gender wage gap that can be explained by differences in education and experience, and the part that cannot, and thus represents a gender bias in some shape or form, including outright discrimination (Figure 4).[7]

Figure 4. Decomposition of gender wage gap by sector

We notice that the wage gap is much wider in manufacturing than in services. Furthermore, gender biases account for most of the gender wage gap in all sectors. The most interesting result is from services sectors of comparative advantage – that is, India’s major services exporting sectors. Here, even if the gender pay gap is small, all of it – and more – comes from the gender bias.

Thus, the negative contribution from different skills and experience means that women in these sectors are better educated than men.  If women earned the same return on their qualifications as men, they would on average have earned 20% more than men.

Source: Johannesson and Kyvik Nordås (2021)

India can no longer afford to waste its investment in female human capital

India has experienced unprecedented services export-led growth over the past couple of decades. Job opportunities in the ICT services sector have inspired women to seek higher education in science, technology, engineering, and mathematics (STEM) occupations where India scores among the best performers in the world. However, while the ICT services sectors experience skills shortages and a high turn-over rate, the unemployment rate among women with higher education is almost 25%, and according to the Indian Skills Report, women with higher education have the skills sought by employers.[8]

Our analysis reveals a wide gender pay gap which largely stems from gender biases. Such biases discourage women from seeking formal employment. As India and the world economy at large recovers from the Covid-19 crisis, India cannot afford to waste its vast female talent pool. Looking further ahead, India needs full participation of all its talents to attain the objective of green, sustainable, and rapid growth.   For this to happen, closing the gender gap in education is a step in the right direction, but policies to close the gender wage gap, including equal opportunities for promotion, are also urgently needed.

 

References:

CII, Wheebox and Tagged (2021). India skills report 2021. https://indiaeducationforum.org/pdf/ISR-2021.pdf

International Labour Organization. (2018). India Wage Report: Wage policies for decent work and inclusive growth.

Johannesson, L. and H.K. Nordås (2021), Services trade: the great gender equalizer? Foreign Trade Review, first published online: May 25, 2021,  https://doi.org/10.1177/00157325211011845

 

[1] Data reported in the Indian Skills Report suggest a somewhat higher female participation rate.  This is an annual report prepared by an Indian talent assessment platform, in collaboration with business associations, higher education associations and UNDP.

[2] See Johannesson and Nordås (2021), which analyses the Indian Labour Force Surveys.

[3] See ILO (2018).

[4]The overall ranking of India is 112th out of 153 http://www3.weforum.org/docs/WEF_GGGR_2020.pdf.

[5] UNESCO’s gender parity index on the gross graduation ratio from first degree programmes in tertiary education, stood at 1.26 in 2019 for India (an index above one indicates that women’s gross graduation ratio is higher than men’s). Note however, that women outperform men on this indicator in most countries. The gross enrolment ratio from primary to tertiary is also above one in India (1.04 in 2019) See http://data.uis.unesco.org/.

[6] The 20 countries included are Argentina, Australia, Brazil, Canada, France, Germany, India, Ireland, Italy, Mexico, Netherlands, New Zealand, Saudi Arabia, Singapore, South Africa, Spain, Sweden, United Arab Emirates, United Kingdom and United States.

[7] The total wage gap is the log of the ratio of average men’s wage to average women’s wage. The gap is zero if men and women earn the same wage on average.

[8] The World Bank Gender Statistics Databank reports an unemployment rate of almost 25% among women with higher education, compared to 13% for men in the same category. The unemployment rate for women with only basic education on the other hand is only 3%, compared to 4% for men. All figures are from 2018. The Indian Skills Report provides an annual update of skills demand and supply and employability by gender, age, and geographical area. Employability refers to having skills that are needed at the workplace.