Determinants of women’s labour supply in Bangladesh and Pakistan

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Literature Review

The study on Nigeria by Ashraf, Weil and Wilde (2013) concerns the effect of fertility and its relationship with the gross domestic growth per capita. The study uses the United Nations (UN) medium-fertility population projection as a baseline. The study confirms that a decline in fertility increases the income per capita by an amount that can be considered as economically significant. Moreover, the study indicates that shifting from the United Nations (UN) medium-fertility population projection to the low-fertility population projection raises income per capita by 5.6 per cent within 20 years, and 11.9 per cent within 50 years, which is economically accepted.
A comparative study by Doepke (2004) in England, South Korea and Brazil shows that the decline of fertility in all developed and industrial countries was accompanied by a demographic transition from high to low fertility. The overall repetition process in cross-country varies and also depends upon the speed of the demographic transition. The main finding shows that education and child labour policies affect fertility during the transition to growth. For example, if parents have to pay school fees and child labour is unrestricted, fertility transition starts later and progresses slowly. On the other hand, fertility reduces rapidly if the education is publicly provided and child labour is illegal (Nanjunda, 2009).
The study conducted on women’s labour force participation and fertility of high, medium and low income countries by Nguyen (2009) concludes that fertility has a negative relationship with women’s labour supply. The study uses two-stage least squares to analyse the data, and shows that the decline of fertility enhances the women’s participation in the labour market in all countries. The study also notes other factors, such as attainment in education and economic development that encourage women’s labour supply. For example, if a woman acquires education, her participation in the labour market is more valuable than those without or less education.
On the other hand, several studies note that economic development has a positive relationship with fertility, for example, Thyrian et al.(2010) and Andersson (2000). Their studies demonstrate that it is also possible for highly educated mothers with high income to have high fertility due to the encouragement policies by the authorities, such as maternity and paternity leave policy and paid salaries after giving birth to a child. A study in Greece by Hondroyiannis and Papapetrou (2002) examined the industrialized situation and the reasons for the decline of fertility rates by analysing the period from1960 to 1990. The study indicates that an increase in real GDP per capita due to productivity improvements will lead to higher fertility. Through analyses of the vector error correction model (VECM), the variance decomposition analysis and impulse response function confirms the endogeneity of the fertility rate in a joint dynamic relationship.

Fertility rate, education, and women’s labour supply

According to Singh (1994), the neoclassical theory explains that the increasing investment in human capital may encourage women’s work transition from unpaid work, such as domestic chores, to wage-paid jobs. These changes affect household fertility choices and urge parents to moderate the number of children. The decline of fertility is associated with an increase in human investment in the shape of education. For example, the study conducted by Salehi-Isfahani and Kamel (2006) shows that Iran experienced a sharp fertility decline in the 1990s. The Iranian fertility rate declined from more than six births to about two births per women between1980 and2004. Significantly, Iran’s childhood education programme was greatly expanded, and attained the first position in the Middle East in preschool enrolment. Moreover, for the same period, the kindergarten enrolment increased from less than 0.1 per cent to nearly 1.5 per cent of all children who were five years old. The results affirm that family choice has changed and that it affects the shape of the decline of fertility and increase in investment. Consequently, the school going children reflect the parents substitute behaviour between quality and quantity. A substantial growth in total factor productivity and reduced poverty is closely linked to the improvement in schooling, child mortality and adult health, particularly in low income countries (Schultz, 1994). Harmon, Oosterbeek & Walker (2003) conducted a study on human capital in terms of the benefit of education using the regression method and the log wage equation along with controls for work experience and other individual characteristics. They concluded that an individual income has a positive relationship with his/her participation in education. By investing in education, it assists a person to improve skills, which turn into human capital and increases his/her value in the society. Women’s education is as important as male education and may have a higher rate of return, in that an increase in labour force participation along with an increase in farm productivity, low fertility and late marriage, greatly improves child health and nutrition (Todaro, 1994). Educated mothers can look after their children better and can improve the quality of human capital for future generations (Todaro, 1994). In addition, educated mothers are likely to emphasise an increase in the children’s schooling, which will result in a reduction in the infant mortality rate and fertility rate; all such factors are important for a healthier society (Subbarao & Raney, 1992). Women’s education significantly enhances the importance of women’s participation time in the society/market as well as for domestic chores. A study in Pakistan, by Muhammad and Fernando (2010), based on the structural model equation and path model examined the status of women in relation to the fertility rate. The study argues that the low status of women is the major root of the high fertility in Pakistan. A comparison of the status of rural-urban women shows that a rural woman has less rights in household decisions compared to urban women. Urban women have more opportunities to gain an education and have better earning prospects. Consequently, urban women improve their status and take a role in household decisions. The study also finds a negative relationship between the status of women and fertility in Pakistan. The study of Ganguli et al. (2011) shows that by giving women the same level of education as men, it increases women’s participation in the economy and helps to narrow down the gender gap. Based on the study by Fatima and Sultana (2009) it is believed that by increasing the education level among women and improving the Pakistan economy, women will be encouraged to join the labour force.

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Theoretical framework Demographic transition model

The demographic transition and neoclassical growth theories are used in this thesis to understand the research topic. The demographic transition theory helps us to understand the dramatic changes of fertility and mortality and their effects on women’s labour supply in respect of economic development. In addition, the macroeconomic human capital growth model is used to see its effect on the demographic variables (infant mortality rate and total fertility rate) related to women’s labour supply (Tamura, 2006).
The demographic transition model predicts how the demographics change as the economy develops. The theory mainly focuses on the changes in the rate of mortality, birth rate and the effects on economic development. There are five stages of demographic transition.
The first stage explains the phenomenon of high birth rate as well as the mortality rate. This period commonly happens when a country is still dependent on agriculture as its main economic activity. During this period, the family commonly has many children, mostly due to their need for labour to help with farming their fields and for their support during their old age. The family might also lack knowledge concerning family planning and contraception. Similarly, the infant mortality rate is also high during this time because of the low household income. Because of the low household income a family is unable to afford better health care facilities for the members of their family, such as prenatal care and ultrasound. The family might choose to have traditional midwifes rather than professional health care providers. Moreover, the lack of the technological advancement in health care, for example, to prevent premature births and improve care of premature babies, might contribute to the high infant mortality rate (Richardson et al., 1998). The high rate of infant mortality could also be a possible reason for the high birth rate, as a family who has a child mortality might ‘replace’ the child by having another (Al-Qudsi, 1998; Hondroyiannis & Papapetrou, 2002).
In the second stage, the demographics change, as although the fertility rate remains at the high level, the mortality rate rapidly decreases due to the improvement in health facilities and education. Consequently, the population size increases. In the third stage, the mortality rate continues to decrease at a lower rate than that prevailing during stage two. In this stage, the improvement of health facilities allows the family to have the number of children they need without having infant mortality. Also, in this stage, economic structural change mitigates a family’s need to have fewer children. Therefore, the fertility rate is now at its lowest.
In the fourth stage, fertility falls below the level of the mortality rate. Hence, the number of the population either slowly increases or is stable. The reasons behind these changes could be due to access to contraception or the high cost of living to raise children. Researchers have stated that at this stage, women have more access to education, and that it allows women to choose a career. Consequently, it affects their decision to marry and have children at a later age, and, hence, the size of the population starts to level off.
In stage five of the model, the size of the population starts to decrease slowly as the birth rate is lower than the mortality rate even though health facilities are getting better. Most researchers emphasize that the reason behind the changes could be due to family planning, the high cost of living, marriage at a later age and women’s decision to participate in the labour market as well as their decision to choose a career rather than motherhood (Kirk, 1996).

Neoclassical model

The neoclassical growth model is considered as one of the fundamental pillars of the economic development theories. This theory helps us to understand how static economic growth can be obtained through three important factors –capital, labour and technology – in a discrete and continuous time framework. Solow and Swan published their articles in the same year (Solow, 1956; Swan, 1956) and introduced the Solow-Swan Model, or simply the Solow Model. Prior to the Solow model, Harrod-Domar introduced the economic growth model in their article, which later became the most common approach to study economic growth. By using the Leontief production technology, Harrod-Domar developed the most popular and simplest theory, which emphasizes the supply side effect, due to an increase in productive capacity through investment. The model takes the exogenous growth of the labour force (n), constant capital to labour ratio and capital to output ratio. The model further continues with the constant assumptions and considered returns to scale and returns to capital as constants. The model concludes that the higher the saving rate and the lower the capital to output ratio, the faster an economy grows.
Many economists have voiced disagreement and criticised the Leontief production function assumption of using fixed factors of production, and ignoring the imperfect substitutability between the factors. The imperfect substitutability was criticised on the basis that in labour surplus countries it could be replaced with capital and vice versa. Moreover, it has also been argued that a low growth rate may be the reason for the lack of capital productivity rather than a constraint over the availability of capital (low investment). They further said, that to attain the equilibrium, the assumption of fixed capital to output ratio should relax, and, hence these should grow at the same rate(Snowdon & Vane, 2005).
This dissatisfaction provides the reason to replace the Leontief production function with the neoclassical growth theory. In the neoclassical growth theory, total production is a function of labour, capital and technology over a period of time. The Solow model considers the rate of saving, population growth rate and technology progress as exogenous. The model assumes the idea of perfect substitutability among the factors.

Table of contents :

1. Introduction
Objective of the study
2. Literature Review
3. Theoretical framework
Demographic transition model
Neoclassical model
4. Methodology
Estimated model
Vector Error Correction Model
The unit root test
Cointegration tests
5. Results
Unit root test
Johansen Cointegration
VEC Estimation
Impulse response
6. Conclusion
Results for Pakistan


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