Balancing Act: Navigating the Nexus of Female Labor Force Participation and Fertility Rates

Authors: Ashmita Mehra and Gautam Sodani

There exists a visible trade-off between female labor force participation rates (defined as percentage of women aged 15 and above in the labor force) and fertility rates (defined as total births per woman). This poses an important question in front of the economies of the world- 'to find the right amount of balance between women’s inclusion in the current labor market and new entries in the labor market in the future'. The opportunity cost of having gender inclusive labor markets at present is the future economic growth that can be accredited to an ideal (high enough) rate of fertility,  that potentially has to be foregone. 

Historically, it has been a persistent belief that only women are supposed to look after children, especially when they are young. The absence of an institution that can act as a social support system for working women with young children is the root cause of such a trade-off.

Cheng et al (1997) was successful in establishing an insightful causal relationship between fertility and female labor force participation, in the context of Japan - "women being in labor force doesn’t impact fertility levels, but having more young children at home does discourage women from taking up any employment outside their homes."

Figure-1 
(Data Source: World Bank)
For detailed interactive version of the graph, click on https://drive.google.com/uc?export=download&id=10URet2Gi-pzMcxSEnUaHyb4vMCPeM629

Figure-1 depicts the correlation between female labor force participation rates, fertility rates and per capita income for 46 Asian countries for the year 2021. The very first observation is that the correlation is negative, which is a result that is in line with most of the literature revolving around F-LFPR and fertility rates. As per the United Nations, the ideal fertility rate is 2.1. However, most of the high-income countries (represented by the size of the bubbles) lie on the left of this threshold value, and most of them have an F-LFPR of more than 40%. Only a very few countries in Asia have low fertility paired with low F-LFPR (Iran being one of them). If we consider the case of East Asian countries like Singapore, Japan and South Korea, we can see that they have low fertility rates and high F-LFPR. It has been carefully projected by United Nations World Population Prospects 2022 that these countries are going to witness a rapid transition from young to a super aged society by 2050. For instance, Singapore (which also has the highest per capita income in whole of Asia) is projected to have more than 35% of its population aged 65+ and less than 20% of its population aged 20+ by 2050. Singapore has one of the highest FLFPR and one of the lowest fertility rates in all of Asia. On the other hand, many of the central and west Asian countries like Israel and Kazakhstan have both - high fertility rates and high F-LFPR, that would potentially yield higher marginal returns from human resources in the future.

Figure-2: Line-plots showing fertility rates over the years for South Asian countries
(Data Source: UN Department of Economic and Social Affairs)

If we look at most South-Asian countries, they are closer to the ideal fertility rate of 2.1 and have lower F-LFPR relative to the other Asian countries. Figure-2 shows how fertility rates for South Asian countries (Afghanistan, Bangladesh, Bhutan, India, Nepal, Pakistan, Sri Lanka) have evolved over the years from 1950 to 2021. There is a declining trend in fertility rates for all the countries for all age-groups after the 1980s, converging to the ideal fertility rate given by the UN. These countries will tend to reap the benefits of demographic dividends in the coming years. However, careful policy interventions are required to pump up the participation of women in the labor force, while sustaining the ideal rate of fertility.

Figure-3: Heatmaps showing fertility rates over the years for various country groups based on Income
(Data Source: UN Department of Economic and Social Affairs)

Figure-3 looks at fertility rates (total births per 1000 women) for different age-groups of women across countries of the world divided on the basis of income (High-Income - H-I, Upper Middle-Income - UM-I, Middle-Income - M-I, Lower Middle-Income - LM-I and Lower-Income - L-I). For high and upper-middle income countries, there has been increase in the fertility rates for women aged 30-34 and 35-39, relative to the younger age groups, in the last two decades. This hints at the fact that women in these countries are preferring to have children later in their lives. This might increase F-LFPR as well as wages, but it may have negative effects on overall fertility, especially in the absence of supportive family friendly policies (Bratti 2023). There is a tendency that this might potentially delay the economic benefits of having a younger labor force in the economy in future.

In the case of India, we can see a similar trend (Figure 2) of increasing fertility rates for women in older age-groups relative to women in younger age-groups, since 2014-15. On the other hand, the F-LFPR has declined in India from 2014-2021, which in some sense raises double concerns for India.

In conclusion, the intricate relationship between fertility rates, female labor force participation and income remains a pivotal concern for economies worldwide. Striking the right balance between present workforce inclusion and future demographic trends calls for careful policy considerations. The complex interplay of cultural norms, family dynamics, and economic imperatives underscores the need for holistic approaches that support working women and encourage sustainable fertility rates. As nations navigate these challenges, understanding the nuances of these trade-offs becomes essential for shaping equitable and prosperous societies in the years to come. 

References:

·        Bratti, M. Fertility postponement and labor market outcomes. IZA World of Labor 2023: 117 doi: 10.15185/izawol.117.v2

·        Cheng BS, Hsu RC, Chu Q. The causality between fertility and female labour force participation in Japan. Appl Econ Lett. 1997 Feb;4(2):113-5. doi: 10.1080/758526707. PMID: 12347828.

·        United Nations, Department of Economic and Social Affairs, Population Division (2022). World Population Prospects 2022, Online Edition. Medium fertility variant estimates for 2050