The Role of Preferences in Female Labor Force Participation: The Case of Indonesia

Jazz or heavy metal, tragedy or comedy, coffee or tea — all of these fall into one common categorization. We have certain inclinations towards one more than the other, choosing the one that best suits our tastes — we call these preferences. As Nobel Laureates Banerjee and Duflo (2019) wrote in their latest book, preferences have long been considered by mainstream economics as a neutral concept. One that may be judged as neither good nor bad.

The good, the bad, and the invisible hand

Preferences can go deeper than just casual arguments between food critics or music geeks. On certain occasions, people use it as a shield to conceal bigotry towards particular human characteristics such as race and/or gender. However, orthodox economics is confident that the market will take care of these kinds of discrimination.

We will see how a concept called taste discrimination will be helpful in explaining why having prejudice against a particular group will eventually render us worse-off. In his 1957 publication titled The Economics of Discrimination, Nobel Laureate Gary Becker introduces us to how this theory is applied into the labor market. Take for example an employer that favors white job candidates over their black peers. Said employer then gets disutility from hiring blacks and would minimize their discomfort by hiring blacks. Suppose, the market wage of blacks is lower than whites. This decision would then force the employer to forego the potential profit that they could have reaped. First, they could have saved costs by hiring the same number of black workers whose wage is lower. Additionally, the prejudiced employers are hiring the wrong number of workers and this further reduces their profits.

At first glance, this seems like a simple market mechanism. In their paper De Gustibus Non Est Disputandum (translated into There is No Accounting for Tastes), Stigler and Becker (1977) argued that preferences are utility-maximizing behaviors. How then can we explain preferences that do not immediately translate into better welfare for oneself just as we have demonstrated beforehand?

When in Rome

Preferences, are not created in a vacuum, but developed as we humans live and interact with the world. One factor that can strongly influence is social norms we are bound to. Norms are defined as internal valuation — positive or negative — that a person attaches to particular types of action (Ostrom, 2009). To support this argument, the folk theorem from the field of game theory can be helpful in providing insights as to why social norms can be so powerful.

In essence, it tells us that deviating from what is considered ideal by society will result in punishments. This will sufficiently strongly incentivize ‘the players’ to conform with what is desired by the collective (Fudenberg and Maskin, 2009). This is also true for the opposite. In her paper entitled Analyzing Collective Action, Nobel Laureate Elinor Ostrom (2009) wrote that people will cooperate with society when they have repeated experience of receiving rewards by doing so. Punishments and rewards may manifest simply in the form of intangible stuff, such as social exclusion or the generosity of your neighbors.

Norms that hold us back

Now that we have known how social norms influence our preferences, we shall notice how this plays out in a specific case. In this essay, we will highlight one dimension of gender inequality in Indonesia. Based on the World Bank (2019), approximately 8 in 10 Indonesian men aged 15 and above participated in the labor force. In contrast, the rate is much lower for women with only 53.9%. This figure has remained largely stagnant over the last two decades.

This is undesirable — increases in female labor force participation (FLFP) would empower women in many facets of the gender gap including political participation, household decisions (which may influence women and children’s well-being), and less acceptance of intimate partner violence (Cameron, Suarez, and Rowell, 2019). Not only on the individual level, increased FLFP also contributes to the greater good. Estimates by the Australia Indonesia Partnership for Economic Governance (AIPEG) shows that if Indonesia’s FLFP increases to 58.5% by 2025, annual GDP growth would increase by .67 percentage. This translates into an increase of $123 billion in aggregate GDP or $432 per capita.

As predicted, cultural norms indeed play a significant role in forging the gender divide especially in developing countries. Low FLFP can be traced back to religious tenets that women should remain “pure” and be kept from “pollution”. One of the ways to maintain that condition is to disallow them from working outside of the home which will require them to meet men who aren’t family members (Chen, 1995 in Jayachandran, 2015).

Indonesia is no different from its peers in terms of social norms regarding gender, as evident on the results of World Values Survey Wave 7 (2018). A staggering majority of 75.5% respondents agreed to the statement “When jobs are scarce, men should have more right to a job than women”. This is only slightly more prevalent in men (76.5%) than women (74.6%). This view is also held by a number of political parties sitting in the People’s Representative Council (DPR) as they put forward the Family Resilience Bill, which postulated that wives are obligated to take care of their households in the best way that they can.

In line with those facts, it is found that two of the main drivers of low FLFP in Indonesia were marital status and the number of children aged 2 and under in the household (Cameron, Suarez, and Rowell, 2019). Not only that, we can also see how the norm is materialized in how workplace policies are not female-friendly enough. Seeing ‘punishments’ that a woman may receive by deviating from the norm, it is of no surprise that we find a lot of them become discouraged and eventually drop out of the labor force so early in their lives.

A way forward

In order to increase the FLFP in Indonesia, we need to tackle the problem from the root which is gender bias in sociocultural norms. Jayachandran (2015) suggested some policy recommendations that may be useful in doing so. One of them is granting legal rights such as in India by reserving political seats and encouraging women to fill those positions. This has been proven to be help create policies that are tailored to women and reshape views about female leaders. Indonesia has implemented a similar policy, but almost 60% of Regional People’s Representative Council (DPRD) still has less than 15% of female representation and this needs to be addressed properly.

It is indeed a long, long way to unravel all of the interconnected factors that make it so hard to see the future of gender equality. However, if we have the patience we will see that the issue is much more than what is seen on the surface.

References

Banerjee, A. V., & Duflo, E. (2019). Good economics for hard times: Better answers to our biggest problems. Penguin UK.

Borjas, G. J., & Van Ours, J. C. (2010). Labor economics (pp. 346–382). Boston: McGraw-Hill/Irwin.

Cameron, L., Suárez, D. C., & Rowell, W. (2020). Female labour force participation in Indonesia: Why has it stalled?. Achieving Inclusive Growth in the Asia Pacific, 241.

Fudenberg, D., Levine, D., & Maskin, E. (2009). The folk theorem with imperfect public information. In A Long-Run Collaboration on Long-Run Games (pp. 231–273).

Halimatusa’diyah, I. (2019). Semakin banyak perempuan di DPR, tapi riset ungkap kehadiran mereka mungkin tidak signifikan. The Conversation. Retrieved from https://theconversation.com/semakin-banyak-perempuan-di-dpr-tapi-riset-ungkap-kehadiran-mereka-mungkin-tidak-signifikan-125013

Jayachandran, S. (2015). The roots of gender inequality in developing countries. economics, 7(1), 63–88.

Ostrom, E. (2010). Analyzing collective action. Agricultural economics, 41, 155–166.

Sitepu, M. (2017). Hari Ibu: Ekonomi Indonesia bisa lebih makmur jika para ibu tidak berhenti bekerja. BBC Indonesia. Retrieved from https://www.bbc.com/indonesia/indonesia-42428508

Stigler, G. J., & Becker, G. S. (1977). De gustibus non est disputandum. The american economic review, 67(2), 76–90.

World Bank. (2019). World Bank Open Data. Retrieved from https://data.worldbank.org/

World Values Survey Wave 7. (2018). World Values Survey. Retrieved from https://www.worldvaluessurvey.org/WVSDocumentationWV7.jsp