Impact of Globalization on Gender Inequality in Labour Market of Pakistan

• Author: ATIF ALI JAFFRI, MONIBA SANA and ROOMA ASJED

Abstract

This study investigates the impact of Foreign Direct Investment (FDI) and Trade Openness (TO) on gender-based Labour Force Participation Rate Difference (LFPRD) and Wage Ratio (WR) in Pakistan. Using time series data (1982-2012), OLS and ARDL approach to cointegration are applied. The results indicate that FDI positively affects LFPRD and WR whereas openness is found negatively affecting LFPRD. To make certain the validity of results, all standard diagnostic tests related to error term, coefficients and model specification are applied. Further, results of the study are supported by recent empirical evidence. The main policy implication based on results of the study is that TO should be enhanced to decrease LFPRD in Pakistan, and FDI in non-services sector should be encouraged to enhance FLFP.

Keywords: Globalization, Foreign direct investment, Labour force participation rate, Auto-regressive distributed lag model

1. INTRODUCTION

   Gender equality from the economic perspective means equal job opportunities for males and females, equal wages for both genders specifically for those having same level of education and skills, easier access to credit and equal access to inputs. Females are a major source of new labour and can increase growth by reducing the impact of shrinking labour force in aging economies (IMF Staff Discussion Note, 2013). Although several efforts have been made to promote gender equality in the labour market, yet average Female Labour Force Participation Rate (FLFPR) remained low (40%) across the world.1 Further, gendered base labour force participation gap is severe in South Asia with low FLFPR (31.8%) in comparison to male LFPR (81.3%) (ILO, 2013).

   Since 1980s, globalization has decreased transportation costs, increased transmission of knowledge, elevated trade, and promoted FDI inflows and technology transfer. Globalization is one of the important macroeconomic indicators, which has created tremendous impact on gendered labour market indicators in developing nations. According to World Development Report (2012), globalization has increased relative FLFP and wage level.

   TABLE 1 Gender-Based Comparison of Labour Market in Pakistan

   Indicators Both Males Females

   Labour Force Participation Rates (%) 32.9 49.3 15.6

   Unemployed Labour Force 3.73 2.49 1.24

   Unemployment Rate (%) 6.2 5.4 9.0

   Underemployment (worked less than

   1.6 1.2 3.1

   35 hours a week) Rate (%)

   Mean hours worked 46.4 50.1 33.3

   Average Monthly Wages of

   12118 12804 7869

   Employees

   Literacy Rate 59.8 71.1 48.1

   Degree and above Education 4.7 5.6 3.8

   Matric and above Education 21.2 25.6 16.7

   IMF has emphasized on reduction in gender-based LFPD and gendered wage differential in new global economic agenda (Lagarde, 2013). Previously, gender equality was incorporated as one of the MDGs. However, Pakistan is lagging far behind the set of targets related to gender equality goal. Average monthly female wage rate (Rs. 7,869) is 61.4% of average monthly male wage rate in Pakistan. FLFPR (15.6%) in Pakistan as compared with male LFPR (49.3%) is less than one third (see Table 1). Sectoral FLFPR in manufacturing sector (10.9%), construction (0.2%), wholesale and retail trade (1.6%) are far less than female participation rates (75.4%) in agriculture sector (LFS, 2012-13).

   On the basis of standard trade theory of Heckscher-Ohlin, it has been expected that openness of an economy would increase the relative returns of those factors of production which are abundant in the economy. Hence, in developing nations like Pakistan, labour especially unskilled labour is abundant as compared to capital. With the increase in demand of unskilled labour for specializing in labour intensive exports will increase demand and wages of these workers relative to skilled labour. This effect narrows the gender gap in wages and labour force participation in developing countries, as women are mostly engaged in low paid jobs with fewer skills relative to males. Moreover, regarding to Factor Price Equalization the real wages in developing countries rise in response to fall in the real wages of developed nations.

   A few studies have been conducted for Pakistan to check the relationship between globalization and labour market indicators. Nevertheless, no previous study has estimated effect of both FDI and TO on gender equality indicators (LFPRD and WR) in Pakistan. So, the present study intends to fulfill the gap in the existing literature by empirically examining the impact of globalization (TO and FDI) on gender equality in labour market for Pakistan.

2. LITERATURE REVIEW

   Cross country literature documents conflicting empirical evidence regarding the impact of globalization on gendered labour markets of developed and developing countries. Oostendrop (2004) found the significant effect of globalization for developed nations but no effect for developing nations. Contrarily, Tejani and Milberg (2010) have found positive effects on relative FLFP in developing/middle-income nations while negative effects on relative FLFP in developed/high-income nations. Further, Cooray et al. (2012) have found that FDI and trade both negatively affect FLFP in developing nations and positively in developed nations. Rasekhi and Hosseinmardi (2012) conclude that globalization has reduced gap in gender wages for developing countries.

   The impact of globalization on gendered labour market indicators has been empirically investigated for single countries including Japan, Indonesia, India, and Pakistan. Kucera (1998) found that foreign trade expansion adversely affected female employment in manufacturing sector in Japan whereas situation is opposite for Germany. Seigmann (2007) has assessed the impact of FDI on gendered labour market in rural Indonesia by using the combination of quantitative and qualitative types of data. Results provide the evidence...