Female Labor Market Participation and Socioeconomic Development: Disentangling the U-Shaped Hypothesis

Abstract

The U-shaped hypothesis of the relation between economic development and female labor market participation has been a main framework for analyzing female labor market patterns. However, it mixes up two dimensions of development: the increase in income level and the development of social norms from traditional to modern. We disentangle the U-shaped hypothesis by explicitly accounting for social norms within the socioeconomic development process. This allows for a richer analysis of female labor market participation in countries which have developed more in one of the development dimensions rather than the other. To demonstrate, Saudi Arabia is a rich and traditional country while many countries in Eastern Europe are relatively poor and modern. We hypothesize implications of these 'rather onesided' development scenarios on female labor market participation outcomes. We then test this framework on a regional level for Egypt and Germany and find family formation to be much more detrimental for female employment in the rich and traditional regions.