Tackling the misallocation of women's talent in India’s labour market

The 2025-26 Economic Survey of India highlighted the country’s success in boosting economic output and preparing for the economy of the future in the face of "global headwinds". Some of that success reflects long-overdue, right-sized regulation – including labour law reforms – and efficiency-enhancing innovations such as large-scale digitalisation and simplified firm entry requirements.

These efforts have historically paid off: India has moved up from its low position of 142 in the 2014 World Bank’s Ease of Doing Business rankings to 63 in 2021, the most recent year the rankings were released and prior to more recent improvements. 

More women are working, but talent is misallocated

India has another crucial resource that could be effectively applied – women, whose talents and energy could serve as an engine of additional growth and innovation. Fortunately, the top-of-mind challenge is no longer just getting women into the labour force: India’s female labour force participation (FLFP) has rapidly increased since its nadir of 23% in 2017-18, with a variety of potential explanations for this change. Now, a key challenge is ensuring that women are working in jobs best suited to their education, skillset, and interests, and are not consistently landing in less desirable or poorly rewarded roles. 

Periodic Labour Force Survey data from 2023-24 shows that young women's education levels are now generally on par with men's, and women in urban areas are just as likely as young men to hold a diploma or higher. Yet many of these highly educated women are likely employed in roles below their productivity frontier. While many studies have rightly focused on the importance of gender norms that keep women out of the labour force altogether, other recent research points out that significant economic gender-based distortions stem from demand-side barriers to employment – wage discrimination, for example – rather than women’s unwillingness to work altogether. Model-based estimates suggest gender-based distortions reduce aggregate output by roughly 5-15% across states, with higher losses in lower-income states. They also point to higher demand-side distortions in the labour market compared to supply-side barriers.

Continued GDP growth is unlikely to solve this misallocation issue: India’s recent growth experience, which was accompanied by years of declining FLFP even as GDP per capita increased rapidly, underscores how economic growth alone does not close gender gaps in labour market outcomes. 

How can India unleash women’s economic potential?

Existing research points to several important steps that India can take to advance its commitment to unleashing women's economic potential. First, leverage the power of women to draw others in. Evidence suggests that women’s entrepreneurship has a multiplier effect on broader FLFP in India, since female-owned firms in both the informal and formal sectors hire significantly more women than male-owned firms, and boost overall firm productivity. India’s efforts to support female entrepreneurship and expand women-run firms may therefore pay off for other women, beyond individual entrepreneurs.

Second, the labour market is evolving rapidly, opening new opportunities for women to work from home and enabling greater flexibility overall. While these opportunities are promising, careful research is needed to understand the extent to which anticipated gains are achieved. For example, a recent study in the US finds that non-wage amenities such as flexible work arrangements might come at the cost of larger wage gaps, which are distortionary for economic productivity and output.  

Time use, domestic work, and women’s labour market opportunities

India has also invested significant effort in collecting detailed time-use data; assessing the extent to which women’s investments in domestic production could be marketised could point to female-friendly approaches to bring unpaid work into the market economy, allowing for specialisation and increased economic output. Analysis of India’s 2019 Time Use Data suggests that rural women undertake nearly six hours of household chores daily, approximately five times as many as rural men. Opportunities for marketisation may therefore be substantial. Parental investments in caring for children and building their capabilities at home are invaluable uses of time. However, there is still scope for the talents of these same mothers to contribute more to the economy than they currently do. 

Such exchanges could expand the production frontier by reallocating time toward higher-productivity activities. While this would surely not be of interest to all women, policies that identify and facilitate marketisation would be useful for many. A similar analysis of marketisation for other countries suggests that the hours women put into such tasks are not dominated by direct caregiving, but instead by domestic tasks such as cooking and cleaning, which women and households may feel relatively more comfortable outsourcing or reallocating among household members.   

Reducing gender-based distortions can drive growth

Sustained growth in an uncertain global economy will depend on how efficiently countries deploy their human capital to generate broad-based, long-run prosperity. The evidence suggests that reducing gender-based distortions in India's labour market could generate returns similar to many of the structural reforms that the country has already undertaken. Reducing gender-based distortions is not simply a social objective, but a macroeconomic growth strategy whose returns can be measured and opportunities acted upon. 

This post was first published on Ideas for India.

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