ECONOMIC LIBERALIZATION AND GENDER INEQUALITY IN THE LABOR MARKET: A THEORETICAL APPROACH

Abstract

The paper seeks to provide a theoretical foundation to the diverse empirical findings with regard to the role of liberalization in perpetuating gender inequality in the labor market. It studies the role of female labor supply decisions on gender wage inequality by considering the interrelation between liberalized policies, gender wage inequality, and female labor force participation. A three–sector Harris‐Todaro general equilibrium model has been developed to examine the effects of liberalized trade, investment, and labor market policies on the gender wage gap and female labor force participation. There are two underlying assumptions: first, women are paid less because they are employed in the informal sectors; even within the informal sector, they are engaged in particularly low paying activities because of gender segregation. Second, female labor supply decisions or female labor force participation is endogenous, and depends on male and female wages, and the unemployment of male workers. The comparative static analysis indicates that while a reduction in import tariff may narrow the gender wage gap and raise female workforce participation, foreign capital inflow and labor market deregulation may aggravate gender wage inequality and lower female labor force participation.