The Service Sector and Female Market Work: Europe vs the US

This paper studies cross-country differences in female employment and aggregate labor market hours over time, by quantifying the role of structural transformation and gender differences in sectoral labor productivity. Some countries have developed large service sectors, while others have not. These sectoral patterns can explain a large part of the cross-country differences in female employment and aggregate hours worked. Empirical evidence on why women predominately work in the service sector is provided. Consistent with previous studies, labor and consumption tax differences are able to explain large sectoral differences across countries. The key is households can produce a substitute for market services and women are, on average, less productive in sectors requiring more brawn, such as industry, giving them a comparative advantage to stay at home and work in the service sector. Therefore, an economy that imposes high taxes does not facilitate the movement of women into the labor market, causing service production to remain at home. This reduces the demand for market services, which feeds back into low total hours worked by women (and the total economy). Subsidies to female employment can circumvent the high tax effect, but lead to welfare loses.