Enterprise Surveys Enterprise Note Series Gender Legal Institutions and Women’s Employment 2016 Mohammad Amin and Asif Islam T his note explores the role of legal institutions in influencing women’s employment in private firms in developing countries. Both a holistic and specific approach to legal institutions is adopted. Regarding the former, the relationship between the overall number of gender-based legal disparities on employment is documented. With regards to the latter, specific aspects are considered such as mandating laws prohibiting discrimination along gender lines in hiring practices, legal provisions of maternity leave that guarantee women an equivalent position to the one held earlier upon return from maternity leave, and Enterprise Note No. 32 legal provisions of paternity leave. The findings suggest that the legal environment matters, and laws that are more favorable towards women are associated with a sharp increase in their job prospects. Introduction ensure that the sample is nationally representative of the non-agricultural and non-financial formal private economy.1 Institutions play a significant role in shaping economies. The measure of women’s employment used throughout the They set the rules of engagement in society and they note equals the share of workers at the firm that are women. are man-made (North, 1990). Thus, what are the Data on all the laws or legal variables considered are taken consequences when legal institutions discriminate on the from the Women, Business and the Law project (WBL; basis of gender by treating women less favorably? What is 2010 values) of the World Bank. It should be noted that the the impact of laws such as those related to maternity and results presented below are in the nature of correlations or paternity leave on women’s well-being? These questions associations. Hence, while they are suggestive of underlying have grown in importance given mounting evidence of causal relationship, more work is required to ascertain or negative outcomes associated with gender inequality and reject the suggested causality. less favorable treatment of women (see for example, Abu- Ghaida and Klasen, 2004; Klasen and Lamanna, 2009). Overall gender disparity in the laws is In this note, we explore the relationship between women’s associated with a lower share of women employment in the private sector in developing economies workers and the overall number of gender-based legal disparities. We World Bank Group further delve into how women’s employment is related to Gender-based differences in laws are pervasive, implying particular aspects of the legal code such as laws mandating less favorable treatment of women relative to men. The non-discrimination in hiring practices along gender lines, disparities cover various aspects of economic and non- laws related to maternity leave which guarantee women an economic activity. For example, gender disparity exists in equivalent positon to the one held earlier and mandated laws related to the hiring of workers, inheritance rights, length of paternity leave. We measure women’s employment applying for a passport, obtaining loans from banks, etc. using firm-level surveys conducted in over 50 developing Collectively, these various elements of the law define the countries collected by the World Bank’s Enterprise Surveys overall institutional environment for women relative to men. (ES) between 2006 and 2015. This involves data from A composite measure of the overall institutional over 30,000 firms. The ES cover private sector firms in the environment is a useful starting point and a good benchmark formal (registered) manufacturing and services sector of the for assessing the relationship between gender disparity in the economies. Sampling weights are provided in the survey to laws and economic outcomes such as women’s employment. Using information on 39 different laws from WBL in terms of how they treat women relative to men, we construct a Does mandating a non-discrimination clause composite measure of gender disparity in the laws. For in hiring practices matter for women’s this, each law is coded as a dummy variable equal to 1 if employment? a gender disparity in the law exists and 0 otherwise. Note that the presence of gender disparity implies less favorable Under competitive markets, gender-based differences in treatment of women relative to men. We take the sum the labor market are unlikely, as any firm with a “taste” for over the 39 dummy variables which indicates the number discrimination will face higher costs, and thus be eliminated of laws in the country with gender disparity. The 39 laws by the competition (Becker, 1971). However, gender covered are specific in nature and span the areas of accessing differences in the labor market have persisted, potentially institutions, using property, getting a job, going to court, and suggesting the uncompetitive nature of the labor market or taxes. Some examples include: Are there tax deductions or creating room for alternative theories. These other theories credits specific to men? Can non-pregnant and non-nursing fall under preference-based explanations, monopsony women do the same jobs and men? Do unmarried men and models, and job matching models. Under preference-based unmarried women have equal ownership rights to property? models, women are under-represented in the labor market As mentioned above, for women’s employment, we use ES because of their preferences (such as having children) data from 33,826 firms in 53 developing countries. which affect their productivity relative to men. Under the The results show that greater gender disparity in the laws monopsonist model, a single employer has bargaining is strongly correlated with lower women’s employment. On power in the labor market and thus pays wages according to the conservative side and for the 39 laws covered, removing the mobility of labor. If women workers are less mobile than gender disparity in a given single law is associated with an male workers, they may remain underrepresented in the increase of 0.63 percentage points in the share of women labor market. Job matching models posit a poor matching among total workers at the firm (against a mean value of 33 between available jobs and female vs. male job applicants. If percent women workers). Alternatively, for a country such as none of the above theories hold, pure gender discrimination Jordan that has highest number of laws favoring men over is said to prevail (Ginther, 2006). In this scenario, a law women - 23 out of 39 laws - removing gender disparity from mandating non-discrimination in hiring practices against all the 23 laws is associated with an increase in the share of women (henceforth, non-discrimination law) has the women workers at the firm by over 14 percentage points. potential to improve women’s employment prospects. Of These findings hold even after accounting for differences course, adequate enforcement mechanisms must exist for in various firm and country characteristics that could affect the law to have any impact. women’s employment (figure 1).2 Using ES data, Amin and Islam (2015) explore the relationship between the presence of a non-discrimination law and women’s employment in over 14,000 manufacturing Figure 1 Greater gender disparity in the firms. According to WBL, two conditions have to be met laws is associated with a lower for a country to have the non-discrimination law or clause: share of women workers at the (a) the clause has to explicitly mention the word sex or firm gender; (b) the clause has to explicitly refer to the hiring 15 process and not just discrimination in general, and not Percentage of workers at the firm that are women just discrimination in the workplace once employment is already obtained. (residuals, country-level averages) 10 What are our findings? On average 35 percent of workers 5 in a firm are women in developing countries with a hiring 0 non-discrimination law in contrast to 26.4 percent in -8 -6 -4 -2 0 2 4 6 8 10 12 developing countries without a hiring non-discrimination -5 law (figure 2). In a more detailed analysis accounting for -10 several firm and country characteristics,3 mandating a non-discrimination law is associated with an increase of 5 -15 percentage points in women’s employment. This positive Gender disparity in laws (residuals, country-level averages) association is stronger among the relatively richer countries, smaller firms and countries with a larger proportion of Source: Enterprise Surveys and Women, Business and the Law. women over the whole population. Note: The graph is a partial scatter plot obtained after accounting for differences in various firm and country characteristics listed in endnote 2. For expositional reasons, country-level averages of the residuals are shown although the negative relationship shown holds even at the firm-level. 2 countries in the sample under study that mandate paternity Figure 2 Mandating a non-discrimination leave while the remaining 31 do not. The empirical results law is associated with a greater reveal that paternity leave does matter. That is, the share proportion of women workers of women workers at the firm is much higher in countries that have a paternity leave law vs. the rest (figure 3). This 40 relationship survives even after accounting for differences 35 in various firm, industry and country characteristics.6 Percentage of female workers 30 26 20 Women’s employment and laws 10 guaranteeing return to an equivalent position after maternity leave 0 Country does not have a Country has a non-discrimination non-discrimination law in hiring practices law in hiring practices There is a fairly large body of work analyzing the impact of maternity leave days on women’s job prospects. However, the length of maternity leave is not the only issue for women. Source: Enterprise Surveys and Women, Business and the Law. They may also worry about laws guaranteeing a return to a Note: The figure shows firm-level average values across countries. position equivalent to the one they held before going on maternity leave (henceforth, equivalent position law). In Paternity leave and women’s employment fact, it is conceivable that maternity leave may have a much larger positive impact on women’s decision to join the labor Governments have grappled with policies to improve market when it is combined with an equivalent position law women’s job market prospects. Recently, the spotlight (confirmed below). has been turned on paternity leave. Two articles (Fortune, Several countries have adopted an equivalent position February 20154 ; New York Times, Nov 20145) have law. The impact of an equivalent position law on women’s highlighted potential benefits of paternity leave, including employment may vary depending on what channels better job prospects for women. However, the discussion dominate. On one hand, the law may result in fewer women on paternity leave is restricted to developed countries. opting to abandon their careers after having children. Since Do paternity leave laws exist in developing economies? they do not have to resort to lower positions after absence If so, can we uncover any relationship with employment from the job market, continuity in the professional career is outcomes? preserved, thereby maintaining the labor supply of women. The formal empirical literature suggests two mechanisms On the other hand, ceteris paribus, employers may not for the impact of paternity leave on employment of necessarily discriminate, but they are likely to hire fewer men and women. First, employer attitudes may change. women due to the inflexibility induced by the equivalent That is, if a particular position requires investment in position law as well as the potential depreciation of skills of job training, employers may discriminate against hiring returning mothers (Schonberg and Ludsteck 2014). women anticipating frequent absences due to child birth Formal empirical analysis on the relationship between and child rearing activities. However, if paternity leave allows men to spend more time outside employment, assuming considerable uptake of paternity leave, this Figure 3 The share of women workers at may limit discrimination against women. Second, Becker the firm is higher in countries (1985) indicated significant changes in household’s time that have a paternity leave law allocation can be achieved by minor changes in initial conditions. Therefore, changing the allocation of labor 40 35 Percentage of female workers via paternity leave could change the trajectory of women’s 30 28 labor allocation in the market. Empirical evidence on the impact of paternity leave on women’s employment 20 is mixed. For example, while Amarson and Mitra (2010) 10 find a positive impact in Iceland, other studies find no such impact (see for example, Cools et al. 2015). 0 Country does not have Country has a a paternity leave law paternity leave law Based on Amin et al. (2016), we provide new evidence on the issue for a cross-section of 33,308 firms in 53 developing countries. According to the WBL, there are 22 Source: Enterprise Surveys and Women, Business and the Law. Note: The figure shows firm-level average values across countries.. 3 women’s employment and an equivalent position law is The legal environment consisting of various laws and its limited and largely restricted to developed countries. The treatment of men and women can have a significant impact evidence that is available shows mixed results (see for on women’s employment prospects. This note provides example, Klerman and Lebowitz 1999, Baker and Milligan supportive new evidence for a large cross-section of private 2008). firms in over 50 developing countries. Both the overall We provide new insights on the possible link between legal environment and disparities in specific laws involving women’s employment and an equivalent position law hiring, paternity leave, and maternity leave seem to matter for a large cross-section of 33,703 firms in 53 developing in that women's employment is higher when these laws are countries. Out of 53 countries in the sample, 31 have more favorable towards women. mandated an equivalent positon law while the remaining have not. We find that the share of women workers in the firm is much higher in countries that have mandated an equivalent positon law than in countries that have not mandated the law. A conservative estimate suggests an increase of 4.1 percentage points in the proportion of women workers associated with the law. This is a large increase given that on average, women workers comprise 32 percent of all workers. The positive relationship between women workers and an equivalent position law survives even after accounting for differences in various firm and country characteristics that could affect women’s employment.7 As suggested above, the impact of maternity leave on women’s employment may be enhanced when an equivalent position law is also mandated. The data do not reject such a possibility. Figure 4 illustrates the point. That is, while more maternity leave is positively associated with women’s employment, the association is much stronger when an equivalent position law is also in place. Figure 4 The positive relationship between maternity leave days and women’s employment is stronger when an equivalent position law is in place 40 38 Percentage of female workers 32 31 30 28 20 10 0 Equivalent position No equivalent position law mandated law mandated Below median maternity leave days (<=98 days) Above median maternity leave days (>98 days) Source: Enterprise Surveys and Women, Business and the Law. Note: The figure shows firm-level average values across countries. 4 Notes References 1. Detailed information on sampling methodology is available at www. Abu-Ghaida, Dina, and Stephan Klasen, (2004), “The Costs of Missing enterprisesurveys.org. the Millennium Development Goal on Gender Equity. World 2. These characteristics as follows: firm characteristics include firm- Development, 32(7), 1075–1107. size and age, industry dummy (industry fixed effects), exporting Amin, Mohammad, and Asif Islam (2015), “Does Mandating status, foreign ownership, gender of the top manager, presence of Nondiscrimination in Hiring Practices Influence Women's at least one female owner, provision of training to workers, and if Employment? Evidence Using Firm-Level Data,” Feminist Economics there were losses due to crime in the last year; country characteristic 21(4): 28-60 include GDP per capita level and its growth rate, proportion of Amin, Mohammad, and Asif Islam and Alena Sakhonchik (2016), women in total population, fertility rate, primary and secondary “Does paternity leave matter for female employment in developing gross enrollment rate of women relative to men, religious affiliation, economies? Evidence Using Firm-Level Data,” Applied Economics share of agriculture and manufacturing in total value added, and Letters 23(165): 1145-1148. proportion of population with access to sanitation. Arnarson, Bjorn Thor, and Aparna Mitra (2010), “The Paternity Leave 3. The firm and country characteristics include firm size, sector, female Act in Iceland: Implications for Gender Equality in the Labour ownership, business environment quality, level of development, Market,” Applied Economics Letters 17(7): 677-680. education, proportion of women in parliament, and also an overall Baker, Michael and Kevin Milligan (2008), “How Does Job-Protected measure of gender disparity in laws in case we are capturing the Maternity Leave Affect Mothers’ Employment?” Journal of Labor effects of other laws. Economics 26(4): 655-691. 4. http://fortune.com/2015/02/01/paternity-leave/ Becker, G. S. (1971), "The Economics of Discrimination," 2nd edition. 5. http://www.nytimes.com/2014/11/09/upshot/paternity-leave-the Chicago: University of Chicago Press. -rewards-and-the-remaining-stigma.html?_r=0 Becker, Gary S., (1985). “Human capital, effort, and the sexual division 6. These characteristics are listed in endnote 3. of labor.” Journal of Labor Economics 3, 33–58. 7. See endnote 3 for these characteristics. Cools, Sara, Jon H. Fiva, Lars J. Kirkeboen (2015), “The Casual Effects of Paternity Leave on Children and Parents,” Scandinavian Journal of Economics 117(3): 801-828. Ginther, D. K. (2006), "The Economics of Gender Differences in Employment Outcomes in Academia," In Biological, Social, and Organizational Components of Success for Women in Science and Engineering: Workshop Report. Committee on Maximizing the Potential of Women in Academic Science and Engineering. The National Academies Press, Washington, DC. 99-112. Klasen, Stephan and Francesca Lamanna (2009), “The Impact of Gender Inequality in Education and Employment on Economic Growth: New Evidence for a Panel of Countries,” Feminist Economics, 15:3, 91-132. Klerman, Jacob Alex, and Arleen Leibowitz (1999), “Job Continuity among New Mothers,” Demography 36(2): 145-155. North, Douglas (1990), Institutions, Institutional Change and Economic Performance, Cambridge University Press, Cambridge. Schonberg, Uta, and Johannes Ludsteck (2014), “Expansions in Maternity Leave Coverage and Mother’s Labor Market Outcomes after Childbirth,” Journal of Labor Economics 32(3): 469-505. The Enterprise Note Series presents short research reports to encourage the exchange of ideas on business environment issues. The notes present evidence on the relationship between government policies and the ability of businesses to create wealth. The notes carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this note are entirely those of the authors. They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent. 5