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| The Gender Gap in the Labor Market, Structural Transformation, and Demographic Transition |
| GUO Kaiming, WANG Yubing, YAN Se
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Lingnan College, Sun Yat-sen University;
Guanghua School of Management, Peking University |
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Abstract The modernization of China is inextricably linked to its population. China is undergoing a rapid demographic transition, with a falling fertility rate, an aging population, and a shrinking population dividend. China's labor force has been decreasing since 2015, and its population peaked around 2021. Meanwhile, China's economy is undergoing a salient structural transformation, with a new technological revolution, a new wave of industrial change, and a rapid increase in high-tech manufacturing and modern services on the horizon. This structural transformation may affect population growth, while the demographic transition may also affect the structure of the economy. The relationship between these two processes and the related effects require comprehensive study to help China promote long-term, balanced population growth and promote structural transformation during this new development stage.
We propose a new theoretical mechanism of the gender gap in the labor market to better understand the relationship between structural transformation and demographic transition. Our novel dynamic general equilibrium model incorporates the endogenous evolution of the gender gap in the labor market, structural transformation, and population growth. The model also allows us to fully capture the structural effects of related policies, such as directly intervening in the price of female labor or lowering fertility costs. We focus on the gender gap in the labor market for three main reasons. First, the share of female employment differs greatly among sectors in China, and the sectoral shares of output vary. Second, the industries with the largest share of female labor are mostly skill-intensive. Skilled labor relies on mental labor, whereas unskilled labor relies on physical labor. Compared with male workers, female workers have an advantage in supplying mental labor relative to physical labor. Third, women have an advantage over men in raising children.
We find that because the structural transformation process increases the share of mental-labor-intensive sectors, it narrows the gender wage gap, increasing fertility costs and thus decreasing the fertility rate. This in turn increases the relative supply of female labor and mental labor. When the elasticity of substitution between sectoral outputs is high, the share of mental-labor-intensive sectors continues to increase. Hence, the economy experiences a dynamic transition in which the share of mental-labor-intensive sectors increases, the gender wage gap narrows, the relative supply of female labor increases, and the population growth rate falls. We also find that a policy to intervene in the price of female labor, which is intended to narrow the gender wage gap, may instead result in the structural unemployment of women, widen the gender gap in the labor market, and slow structural transformation. A policy to lower women's fertility costs would increase the fertility rate, but it could have the same side effects. In contrast, a policy to lower the fertility costs of men would increase the fertility rate, narrow the gender gap in the labor market, and promote structural transformation. We also find that the adverse effects of subsidizing childbirth may be reduced when sponsored by the government rather than firms. Thus, a policy to further lower men's fertility costs should be coordinated with a policy to lower those of women, with the former sponsored by firms and the latter by the government.
We derive the policy implications of these findings by suggesting policies to promote long-term, balanced population growth, narrow the gender gap in the labor market, and spur structural transformation. Moreover, the government should establish policies that simultaneously encourage families to have children, improve the structure of the labor supply, and narrow the gender gap. First, the government should act to reduce the opportunity costs of fertility, particularly for men. Second, the government should reduce the economic burden of having children and support firms with more tax breaks and public spending. Third, the government could also explore alternative ways to increase birth rates through public spending and tax reductions.
This paper contributes to the literature by systematically analyzing the relationship between the gender gap in the labor market and China's ongoing structural transformation and demographic transition. The conclusions offer a novel mechanism through which structural transformation and demographic changes affect each other and a comprehensive framework with which to evaluate the structural effects of related policies.
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Received: 07 June 2022
Published: 16 February 2023
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