Authors: Simran Sinha; Beaulah Anton; Priyansi; Rezaa Sharma
Abstract:
India has made significant progress in expanding female education, yet women’s labour market outcomes remain disproportionately poor. This study reframes this paradox as an issue of gendered human capital misallocation, rather than a deficit in skill formation. It examines how the gendered labour market constraints impede the educated women from productive employment, leading to underutilisation of skills and decreased economic efficiency.
Utilising a qualitative-descriptive approach and secondary data from multiple databases, this paper examines unemployment, occupational segregation, unpaid care work, and wage disparities between educated women and their male counterparts. The findings show a persistent education-employment paradox: increased female education correlates with high unemployment, informalisation, and labour force withdrawal. These patterns are driven by demand-side discrimination, inflexible work arrangements, safety and challenges in mobility, and unequal distribution of care responsibilities. The analysis argues that government policies have largely prioritised educational expansion without addressing labour market absorption, therefore sustaining gendered inefficiencies. Addressing this inefficient allocation is what makes it important for optimal human capital utilisation and for inclusive economic growth.
Keywords: Human Capital, Female labour, Labour market segmentation, Gender wage gap, public policy, employment, Human capital misallocation
Introduction:
The misallocation of gendered human capital is a central constraint on India’s economic and social development, which remains insufficiently addressed. The female literacy in India, as per the 2011 census, was 65.46%. Over the past few decades, India has made significant progress in expanding access to education for women, particularly at the secondary and higher levels. This expansion leads to the accumulation of female human capital and an implicit expectation of improved labour market outcomes (Dey, 2015). However, these educational gains have not necessarily translated into proportional increases in female labour force participation, wage equality, or occupational advancement. Instead, women continue to experience systematic and structural exclusion from productive and remunerative employment.
This points to a structural misallocation of human capital, given that these women are either not able to enter the labour market because of barriers to entry or are being absorbed in low-paying, informal jobs segregated from the mainstream, which compromise skill utilisation. The persistence of gender inequality in the Indian labour market is manifested in segregated occupations, wage discrimination, and constrained access to regular employment opportunities-a fact that constrains women’s economic participation (Awasthi, 2019; World Bank, 2016). These occupational constraints operate concurrently with the entrenched social and institutional norms that shape the labour demand and restrict employment choices. Gender-specific labour market restrictions take centre stage in the creation of this inefficient allocation. On the one hand, the labour supply side comprises disproportionate responsibility for unpaid work, restrictions on the employment of females, safety, female mobility, as well as perceptions concerning motherhood. On the other hand, the demand side comprises segregation, deficient availability of quality jobs, wage inequality, as well as perceptions concerning occupational choices, which act as a restriction hindering females from employment opportunities. These restrictions appear particularly binding for females with education due to a range of perceptions relating to their work choices.
This misallocation of resources is huge in nature, considering that, as per the 2011 Census, the population of India is 121.1 Crore, out of which 48.5% are females. Underutilisation of human capital from one gender leads to lower productivity, thus affecting the overall growth rate that India could attain as a nation, even as estimates project that a rise in female workforce participation could result in substantial gains in national income, considering the growth rate that could be achieved in 2025 (Goldman Sachs, 2025).
India, while having a high growth rate, boasts one of the lowest figures in the participation rate of women in the workforce, thus implying a failure in effectively utilising the human capital as a whole, as projected in 2025 (Kundu, 2025; Nagarajan, 2025).
The outcomes are also greatly influenced by the involvement or interventions of the public policy sector. For instance, aspects such as the presence of trade union regulations, maternity schemes, skill development strategies, childcare services, and employment generation schemes are significant factors that affect the motivation as well as the possibilities for women to engage in the normal labour force activities. Public policy initiatives to improve employment generation, safeguard workers, and offer protection are also seen to have achieved certain imperfect outcomes. These initiatives, while intended to improve the contribution towards women’s economic involvement, may also serve to undermine the motivation to engage in the normal workforce activities as well as create gender-based discrimination (Garcia, 2025). Similarly, wage determination schemes do not address wage gaps effectively based on gender (Chatterjee & Adhikari, 2023).
Literature Review:
India faces substantial inefficiency in its labour market, which is the misallocation of educated labour human capital that affects women. Despite substantial development in women’s education, persistent gender-specific barriers prevent skilled women from realising their productive potential, which leads to under-utilisation of skilled labour. Public policies often lead to reinforcing such inequalities and gaps rather than solving them (Awasthi, 2019).
Gender-specific constraints in India manifest through social norms, safety concerns, and infrastructural defects that discourage educated women from workforce participation. Women with secondary or higher education face higher unemployment rates, often persisting in the NEET (Not in Education, Employment, or Training) category, as employers showcase biases favouring male candidates even for comparable qualifications (Chatterjee, N. and Adhikari, S., 2023). Unpaid care work aggravates this, as surveys indicate women devote eight times more hours daily to domestic tasks than men (Chatterjee, N. and Adhikari, S., 2023), clashing with rigid work schedules and limiting access to formal jobs.
The rural-urban divide adds to this issue. Rural women engage more in agriculture (41% participation), but in urban formal sectors where educated skills command premiums remain inaccessible due to poor public transport, harassment risks, and childcare scarcity. The misallocation disturbs human capital deployment. Economic models of misallocation, like those stated by Hsieh and Klenow (2009), adapted to gender, suggest that channelling educated women in low-skill informal roles or homemaking reduce aggregate productivity by 5% to 10% of GDP potential. In India, female labour force participation (FLFP) decreased from 32% in 2005 to under 24% in 2024, despite rising female literacy from 55% to 77% (Kundu, 2025). Educated women facing wage gaps opt out, channelling talent into suboptimal uses and increasing the rate of youth unemployment (Kundu, 2025).
Empirical studies tend to understate the level of inefficiency. Econometric data reveal that education is a prime inequality driver. High-skilled women access better jobs at lower rates than men, with gender explaining 20% to 30% of wage disparities (Dey, 2015).
The PLFS (Periodic Labour Force Survey) highlights a paradox: unemployment among the proportion of graduate women exceeds 40%, far above that of men, signalling demand-side discrimination and supply-side withdrawal. Segregation persists, women cluster in low-productivity informal work (90% of female employment), despite human capital investments through schemes like “Beti Bachao Beti Padhao”, which boosted enrolment but not absorption into the workforce (Dey, 2015).
Time use data from 2019 confirms the theory of “double burden”: educated women exit formal roles when family demands peak, forgoing returns on schooling investments. Return of investments for men are good, but near-zero for women. Rising household incomes trigger an “income effect,” where affluence allows families to sideline daughters from work, further misallocating talent amid India’s skill shortages in tech and services (Sachs, 2025).
Public policies tend to play a dual role, sometimes decreasing but often exacerbating misallocation. Positive interventions such as universal secondary education have lessened human capital gaps, allowing women to defer low-wage casual labour tasks for future skilled entry roles, narrowing informal wage gaps. Gender budgeting since 2005 and schemes like “Ujjwala” (LPG access) indirectly ease domestic burdens, marginally lifting FLFP, yet failures persist (Chatterjee, N. and Adhikari, S., 2023). The Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA), known for its poverty alleviation, inadvertently led to low female participation by supplanting women’s “added worker” roles, eroding bargaining power and resource control within households (Muralidharan, K., & Prakash, N.,2025).
Implementation gaps affect other arenas as well, and their effects are holistic. For example, the workplace safety laws and equal pay mandates flow into informal sectors, while childcare policies still remain underdeveloped, covering under 1% of needs. Fragmented efforts like campaigns without structural reforms fail to dismantle norms or biases embedded in job ads and hiring. Consequently, policies amplify misallocation by boosting supply (education) without addressing demand barriers, leaving educated women idle (Garcia, 2025).
Targeted reforms could realign human capital. Expanding creches, flexible hours, and safe transport might be able to unlock 27-40 million workers, boosting GDP by 1-2% annually, per Goldman Sachs estimates. Affirmative hiring quotas in public sectors, coupled with bias- training could signal shifts. Rigorous policy evaluation—randomised trials on childcare subsidies—ensures efficacy, avoiding MGNREGA-like pitfalls (Garcia, 2025).
To conclude, India’s gendered constraints tend to hinder educated women’s potential, with policies as enablers of inefficiency. Holistic redesign, prioritising infrastructure and norms, holds the key to efficient growth.
Research Gap:
Despite a recent increase in research on female labour market participation, there are a number of crucial gaps in the literature that relate to India. First, much existing literature looks at education or employment outcomes separately and does not explicitly frame the weak translation of female education into labour market participation as a problem of human capital misallocation. Consequently, the implications of the non-participation and underemployment of educated women are commonly underemphasized.
Second, many studies consider women as a fairly homogeneous group, with little consideration of how the labour market constraints vary with education level. Educated women have problems with job quality, occupational status, and social expectations that have not been appropriately captured in analyses on aggregate female labour supply. There is also scant systematic investigation of the manner in which improving the educational outcomes interacts with such constraints in producing underutilization of skilled females.
Third, existing research in the public policy area has heavily emphasised the importance of programme evaluation in several distinct areas, such as employment, skills training, or mother benefits, among others. However, there has been a lack of exploration in analysing the general interaction between the policy setting, labour institutions, as well as gender-related employment norms, in the direction of analysing potential excellence in the demonstration of existing areas of contention in the lives of educated women in society at large.
Lastly, while there is an extensive literature related to the economics of misallocation, this literature mostly concentrates on firms/sectors/cauldrons of capital rather than gender as an efficiency concern. Secondly, human capital misallocation between labour pools is rarely seen through the lens of gender, with particular regard to developing economies globally. This current paper addresses an existing gap through conceptualising the labour market absorption problem of educated women in India as an instance of gendered human capital misallocation with specific regard to the role of policy innovation in such an outcome.
Methodology:
The proposed research uses a qualitative-descriptive approach in conjunction with secondary data analysis, having a quantitative component in an attempt to analyse female and male human capital misallocation in an Indian setup. This approach will be useful in analysing and identifying structural labour market inefficiencies rather than attempting to establish causation in an econometric model, especially with respect to educated females, as discussed in this paper.
The study utilises the data obtained from pre-existing sources that are acknowledged at the national and international levels, including the Periodic Labour Force Survey (PLFS), National Family Health Survey (NFHS), the World Bank Gender Reports, and the International Labour Organisation (ILO) databases. These sources present a holistic view of the female labour participation rates, unemployment rates among educated females, occupational division, wages, and time use. Moreover, the study also reviews the policies and studies pertaining to the most important governmental policies initiated in the past, including “Beti Bachao Beti Padhao”, the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA), and the reforms in the labour laws.
The study is limited to women who attained secondary and tertiary education because this is the group that best highlights the paradox presented in the introduction. The study uses a comparative gender perspective in assessing the impact of employment outcomes for both men and women holding the same level of educational qualifications. Although the study is based on secondary data, it is aware of the challenges related to underreporting in the informal economy and the intangibility of social norms.
Analysis and Findings:
The results show that there exist three related factors by which gender-specific labour market constraints cause the misallocation of educated human capital in the Indian economy. Education-Employment
Despite substantial progress made by women regarding educational attainment, labour market outcomes are abysmally low for educated women. PLFS shows unemployment rates among graduate women are jointly above 40 per cent, which has been considerably higher than that of men with similar education. This highlights a massive gap between the creation of human capital and labour market absorption capacity. Instead, investments made by women in education are observed to lead to unemployment or withdrawal from the labour force, thereby pointing to demand-side constraints rather than skills. Such a gap leads to inefficiency in the system, as educated women fail to utilise their human capital effectively, which lowers overall labour productivity and thus the returns on educational expenditure made by the government and private institutions. Gendered Labour Market Obstacles
Gender-specific constraints persist as one of the major determinants of labour market outcomes for educated women. Work segregation remains strong, with females being concentrated in low-productivity and informal sectors, even when they have formal qualifications. Concerns related to safety, lack of adequate public transport, and inflexible workplace conditions limit female mobility and access to skilled jobs, especially in the urban formal sectors.
The additional factor that contributes to misallocation is unpaid care work. As time-use surveys indicate, women contribute more hours to domestic and caregiving responsibilities than men do. The resulting “double burden” often forces educated women to leave formal employment in peak working years. This already merely brings about zero returns to women on investments in education, while men realize continued positive returns, the net consequence of which perpetuates gendered inefficiencies in human capital utilisation. Policy Observations
Public policy interventions have shown mixed results in terms of facilitating labour market participation for women. Although education-based interventions have shown positive results in terms of enhancing enrolment figures and postponing entry into low-paying jobs, they have been unable to do much in the post-enrolment sector. Employment guarantee schemes such as MGNREGA have been successful in their aim to reduce poverty, but they have unintentionally contributed to lower female labour market participation by displacing the marginal role of females.
Moreover, employee laws, with extended maternity entitlements in the absence of harmonious employer incentives and childcare facilities, have led to an increase in the cost of female hiring. A weaker efficacy in safety legislation and an average coverage in childcare service provision further disrupts female participation in the workforce. This approach raises female education supply in the absence of countervailing demand factors in relation to female participation, leading to inefficient human capital allocation.
Discussion:
The results from this study show inefficiency in India’s labour market associated with the problem of human capital allocation and not with human capital formation. The persistent gap between rising female educational attainment and their declining labour market participation represents a structural failure in labour market absorption rather than individual- level skill deficits. This, therefore, reframes the gender employment problem from ’empowerment through education’ to one of ‘economic inefficiency’.
The analysis points to a clear education- employment paradox. Gender-specific barriers operating through labour market segmentation, the unpaid care burden, deficits in infrastructure, and discriminatory employment structures systematically distort job allocation. Educated women face high unemployment and withdrawal from the labour force, indicating that the labour market does not allocate jobs based on skillsets; instead, gender acts as a sorting mechanism, which leads to inefficient job matching and underutilization of skilled labour. This is a classic case of misallocation where workers are not employed where they could be most productive.
Gender-specific constraints play a major role in this process. Occupational segregation, mobility restrictions, safety concerns and rigid workplace structures systematically limit women’s access to formal and high-productivity employment. These constraints operate independently of education, meaning that attaining higher education does not relax these barriers. As a result, education increases the number of skilled women without expanding effective labour demand for them, which further increases inefficiency rather than reducing it. Unpaid care work makes this problem worse by imposing time constraints that are incompatible with labour market structures. Women are expected to take on household and caregiving responsibilities alongside any paid work, which conflicts with rigid work schedules in the formal sector. This ‘double burden’ often forces educated women out of the labour market during the years when their skills could be most valuable. This creates limited or declining returns to education by women, whereas men continue to benefit from it. The rural–urban divide contributes to this issue. While the rural labour markets absorb female labour in lower productivity sectors, urban formal markets where educated skills command higher returns remain inaccessible due to deficits in infrastructure and institutional barriers.
This spatial mismatch prevents the efficient reallocation of educated female labour into sectors with higher marginal productivity, further weakening economic efficiency. Public policy represents a mixed role in responding to these issues as policies are focused on increasing the supply of educated women, but have not been matched by reforms in the labour market or employment structures. This imbalance between labour supply and labour demand produces a surplus of educated female labour that cannot be absorbed into productive employment.
Moreover, certain labour and welfare policies have also had unintended effects. Employment guarantee programmes, maternity benefits without incentives for employers and insufficient childcare support can increase the perceived cost of hiring women. Instead of correcting market failures, these policies shift distortions across sectors, reinforcing segmentation and existing inequalities.
Altogether, the findings also suggest that gendered human capital misallocation in India is not an outcome of cultural preferences alone, but a structurally produced inefficiency embedded in labour market institutions, infrastructure and policy design. The exclusion of educated women from productive employment represents a macroeconomic loss, not just a social inequity.
Conclusion:
This study shows that the low participation of educated women in India’s labour market is best understood as a problem of human capital misallocation, rather than a lack of skills or individual choice. The analysis also shows that despite substantial investments in female education; labour market constraints prevent the efficient utilisation of women’s skills and widespread underutilization of human capital.
This ongoing misallocation has serious economic consequences. Public policies, while successful in expanding access to education, have largely failed to address demand-side constraints and institutional rigidities within labour markets. As a result, gender inequality becomes not only a social issue but also a structural economic problem.
To address this challenge, policy focus must shift away from education-only solutions toward broader labour market reforms. Effective reallocation of human capital demands investment in care infrastructure, flexible employment systems, safe mobility and institutional reforms that are essential for better use of human capital. Without such structural realignment, India will continue to expand education levels without converting this human capital into productive economic output.
In this sense, gendered human capital misallocation is not just a development failure, but a misallocation crisis which limits inclusive growth, higher productivity and long-term economic resilience.
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