Discouraged Worker Effect and Labor Market Behavior of Urban Married Women

The study investigates the importance of poor local labor market conditions in explaining the labor market behavior of married women in urban India. Using nationally representative employment data, we empirically test for the existence of a discouraged worker effect arising from either of two mechanisms: (i) unexplained gender wage gap, or (ii) degree of underemployment. A three-stage, district-level analysis of female labor market behavior was undertaken, and selectivity bias was controlled for by using censored probit in the second stage and trivariate probit with Geweke-Hajivassiliou-Keane smooth recursive simulator technique in the third stage of this multilevel framework. We find evidence that the wage gap discourages women from participating in the labor market and the prevalence of underemployment, in terms of overqualification by occupation, discourages them from exploring better job opportunities by making on-job search efforts.