Labor Markets in India: Measurement in Times of Structural Change 

Abstract

We analyze the evolution of India's labor market, with a focus on female labor force participation (FLFPR) from 1983-84 to 2022-23. Utilizing both Indian and international databases that include unit-level surveys and time use data, we address issues of data quality, labor market definitions, and measurement challenges and make necessary adjustments for accuracy. Additionally, by applying a structural microeconometric model, we evaluate the roles of both the labor market and the household sector in female labor participation. Our findings indicate that India's labor market is undergoing a structural transformation driven by rising educational attainments and declining fertility rates. After appropriate adjustments to data and definitions, we obtain six key results: (a) no significant decline in FLFPR between 1999-00 and 2022-23; (b) FLFPR in 2022-23 is comparable to international standards; (c) India requires 7-9 million jobs annually over the next five years, contrary to the widely believed 10 million per year; (d) education shows a U-shaped relationship with FLFPR due to its non-linear relationship with earnings; (e) India's gender wage gap is comparable to that of its peers; and (f) Indian women spend more time on child care, a crucial investment for childhood skill development, than women in OECD countries. These findings challenge assumptions of a sharp decline in FLFPR, significantly lower FLFPR compared to other countries, and slow job creation during 1999-00 to 2022-23.

Keywords: Selectivity, Employment, Female Labor Force Participation Rate, Decomposition