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Macro Shocks: No Second Chances For Women

Here is how demonatisation has changed the growth of participation rates for women

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As we go through a nationwide shutdown with possibly huge repurcussions for the economic health of the nation, there are many who are remembering the demonetisation announced on November 2016. Both the current shutdown and the decision to withdraw currency notes from the economy came as sudden moves. Even as we try to draw parallels, we must keep in mind that the demonetization has an impact only on the informal economy or the sectors which predominantly operate on `black’ money. On the other hand, this current shutdown has impacted all parts of the economy. Yet, both are shocks which had an economy wide impact and to that extent it is instructional to understand how demonetization impacted our economy.

We study two macro shocks that hit the economy before the current pandemic – the demonetization of November 2016 and the GST implementation of July 2017. We look at their impact on employment using the CMIE Consumer Pyramids data. We calculate monthly workforce participation rates for urban men and women in the age range 15-64 years for the period January 2014 to December2019. We categorised a person as employed for a month if they mentioned their occupation as being other than housewife, retired, student or unemployed. Among those who were gainfully employed we considered as working only those whose income from wages and salaries and/or business income was strictly positive for that month.  For each month we looked at the proportion who were gainfully employed out of the total population.

We first consider the workforce participation by women shown in Figure 1. We see that even as the overall participation rates of women are very low and hovering around 10% for the entire duration, yes there is a clear change in pattern around the time of the demonetization. Using statistical tools to check for a structural break in growth of participation rates and we see a clear change in pattern before and after demonetization for women.

When we consider the data for men (Figure 2) on the other hand, we find a much higher participation rate hovering around 70%. Next, looking at the impact of the two shocks, we find that while demonetization does not have as clear an impact on workforce participation, there is a clear change in trend following the GST implementation. This is bourne out again when we check for a structural break in the series measuring growth in male workforce participation.

Hence, the first shock of demonetization to hit the economy had a clear impact on women’s workforce participation while the men’s participation was impacted only by the second shock. Here it is important to keep in mind that women often misreport their work status and often do not report their status as working even though they are working. They are socially conditioned to not think of their contributions as work even as they earn money which helps sustain the family. While such lack of reporting has been widely observed, we argue that as long as such patterns do not significantly change before or after the demonetization event, they do not impact our results.

Next we consider trends in occupation for those who were workforce participants. Again we look at these trends separately for urban men and urban women. Interestingly, for the male workforce participation, we note that while the trend of overall participation does not change with demonetisation, there is a clear change in occupational trends. What we find is that out of the men who are in the workforce, there is a clear reorganization towards the occupation group that we call Self Employed Business. This group includes subcategories such as Businessman, Qualified Self Employed Professionals and Self employed Professional. They are relatively well to do and we see a clear trend where this group grows substantially after demonetization.

The overall trends for workforce participation for both women (Figure 3) and men (Figure 4) by occupation indicate that wage employment is falling, white collar employment is more or less stagnant and small business employment is rising for the entire period under consideration. When we look for structural breaks caused by demonetization we find that the event had an impact on the self-employed business employment  for men where in fact the trend itself changes from decreasing before to increasing after demonetization.  A plausible conjecture would be that the macroeconomic shock of demonetization led to women leaving the workforce altogether while men changed occupations and reclassified themselves as businessmen after they lost other wage employment. It is possible that men lost own wage or white collar jobs and some were able to join larger firms or family businesses.

The lessons of demonetization for this crisis are clear. Women will be pushed out of the workforce and not get a second chance to recategorize themselves. At the same time, men will also face the push but many will try to reinvent their career through changes.




Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.


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Demonetisation women employees

Pritha Dev

The author is Professor at IIM Ahmedabad

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Jeemol Unni

The author is Professor of Economics at Ahmedabad University

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