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 one-sided’ 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.