Trade liberalization and gender inequality: role of social norms

The purpose of this paper is to examine the effects of trade liberalization on gender earning differentials and female labour force participation by considering the interaction between changes in relative wages, intra-household bargaining power and social norms.

A three-sector general equilibrium model is developed where female labour supply is determined as a collective household decision and depends on male and female wages and intra-household power distribution. On the other hand, the effect of power distribution on female labour supply depends on social norms.

Comparative static analysis shows that a tariff cut may reduce female labour force participation and widen gender earning inequality if (i) the agricultural sector is more male labour-intensive than the informal sector, and the marginal utility of the woman from household work is higher than that of the man or (ii) the agricultural sector is more female labour-intensive than the informal sector, and the marginal utility of the woman’s household work is higher to the man than the woman. Policies to raise the empowerment of women might lead to favourable labour market outcomes for women if the marginal utility of the woman’s household work is higher to the man than the woman irrespective of the factor intensity condition.

The results signify that the effect of trade liberalization hinges on both factor intensity conditions and the relative work preferences of women vis-à-vis men, which in turn is shaped by social norms.

The paper contributes to the scant theoretical literature on labour market consequences of trade liberalization by considering the gender equality implications of trade liberalization from a supply side perspective. The results of the model are used to explain the recent gendered labour market consequences in India in the aftermath of trade liberalization.