Say at home, or stay at home? Policy implications on female labor supply and empowerment

This paper develops a theory of female labor supply in a general equilibrium framework in the context of a developing economy. In stage 1, men and women decide whether to get married foreseeing the power and market dynamics in stage 2. Single people make their own decisions whereas married couples make decisions together, the power distribution among partners is determined endogenously. It is shown that female labor supply can take different shapes due to structural differences between economies and multiple equilibria might occur, causing low female labor force participation trap. As for policy implications, we find that tax-break to the employers can give a huge boost to female employment and may reduce the wage-gap. However, tax-benefit to women may widen the wage-gap although both these policies empower women. We also conclude that true empowerment should come with the freedom of choice (to work); increasing female labor force participation does not necessarily empower women. Results found here resonate well with previous empirical findings and suggest additional testable implications.