The Effect of Corruption on Female Labor Force Participation Rates: Simultaneous Equations System Approach

Among labor market indicators, economic participation rates are considered to be one of the key indicators of labor market supply. The desire to participate in economic activities is, on the one hand, driven by the economic needs of the household and, on the other hand, it provides the demand for firms to employ human forces. Whenever each of these factors in the economy is slowed or reacts to changes in the labor market, an important indicator such as the labor force participation rate is likely to decline. In reviewing the labor market situation of countries it can be stated that the higher the labor force participation rate, the higher level of social welfare. Alongside men, women can also participate in economic activities. Female labor force participation is important for strengthening economic and social development of a country because it will increase the efficiency level in the economy and Will bring about economic and social justice. In general, high female labor force participation rate shows two things: 1) women’s progress in economic and social situations. 2) Empowering women. These cases increase justice and the use of human potential in society which can help build higher capacity for economic growth and reduce poverty. It is worth noting that women's employment and economic participation require specific policies and measures and paying attention to their role in economic development should be given more than ever attention. In the scientific literature about labor market, several factors have been mentioned that affect the female labor force participation rate,including: 1) Individual characteristics such as age, gender, level of education, working income. 2) Family characteristics such as other family members’income, the level of education, marital status, employment and family size. In addition, one of the important factors that can influence the female labor force participation rate, is corruption. Corruption by encouraging activities in the shadow economy, Reduces private sector productivity and increases the tax burden by changing the saving-consumption swap. This reduces the supply of labor. Also corruption has a direct and negative impact on labor force participation. It also has an indirect and opposite  effect on labor force participation. Considering the low female labor force participation rate and the high rate of corruption in Iran, it can be stated that the Iranian labor market requires policies and strategies in order to control corruption as well as increasing the female labor force participation rate in different sectors of the economy.

In this study, the impact of corruption on the female labor force participation rate in the labor market of Iran and selected member countries of the Organization of Islamic Cooperation in the region during the period 2005-2018 was studied using simultaneous equations model. In this study, the sample includes Iran and 12 selected member countries of the Organization of Islamic Cooperation (which mainly includes countries in the region). These countries are: Pakistan, the Republic of Azerbaijan, Turkey, Egypt, Saudi Arabia, Bahrain, the United Arab Emirates, Oman, Jordan, Qatar, Morocco and Iraq. Data regarding these countries is extracted from the database of the World Bank and Transparency International.

The results show that, first, there is a two-way causal relationship between the female labor force participation rate and the corruption variable. Second, high levels of corruption and unemployment have a negative effect on the female labor force participation rate in Iran and selected countries, and this effect is statistically significant at a significant level of 5%. The variables of urbanization ratio and economic growth also had a positive effect on female labor force participation but the effect of urbanization ratio is not statistically significant at a significace level of 5%. The impact of female's fertility rate on female labor force participation in iran and selected countries was negative and this effect was statistically significant at the significant level of 5%. Also the impact of education on female labor force participation in iran and selected countries was positive and at the significant level of 5%, it is statistically significant.

In general, the results of the model estimate show that having a negative impact on economic growth and diverting government spending to unproductive ends, corruption has reduced the female labor force participation in iran and in selected countries. The high unemployment rate also limits the ability of individuals to supply labor and participate in economic activities. Also, high female's fertility rate in the studied countries is considered as an obstacle to increase the female labor force participation.