CHAPTER IPX

THEORITICAL W R A M E W O R K

CHAPTER 111

THEORITICAL FRAMEWORK

3.1 Introduction:

The main thrust of the study was to investigate the economic conditions of

working women. In the light of the objectives, which were formulated as a base for

the investigation. the study has concerned itself with certain economic parameters

such as Employment, Income, Consumption, and Savings, which have influenced the

status of working women and their families. In order to guide the investigation a few

hypotheses were formulated. In this chapter we shall explore the relevant theories

which would throw light on the testing of the framed hypotheses.

Among the hypotheses formulated for the study. three are closely related with

established theories. The first hypothesis of the study. states that the consumption

pattern of individual households is influenced by the Demonstration Effect. This

hypothesis is supported by the Duesenberry's Relative Income Hypothesis, which

states that consumption patterns are not independent but interdependent. The second

hypothesis, which states that the proportion of savings is higher than the proportion of

consumption in the higher education group, is based on the Keynesian theory of

Consumption. The last hypothesis intends to examine the role of gender

discrimination in the Indian labour market. The main thrust of the hypothesis is to

determine whether discrimination exists in employment opportunities and wages,

whether it is mom pmvalent in the private or public sector. The hypothesis is backed

by certain theories of discrimination, which will be elaborated later in the'.chaptet.

This study also intends to analyse other theories like Engels law and Veblen effect,

which are of relevance to the present investigation.

3.2 Duesenberry's Relative Income Hypothesis:

The first hypothesis is related to Duensenberry's relative income hypothesis.

An analysis of the theory in brief would help to determine its relevance to the framed

hypothesis. James S. Duesenberry tried to reconcile the short run and long run

consumption functions in his work entitled 'Income, Saving, and the theory of

Consumer Behaviour', published in 1949. The basic assumptions of the hypothesis

were:

1. Consumption behaviour of individuals are interdependent and not

independent.

2. Consumption relations were irreversible over time.

According to Duesenberry's first hypothesis. consumption function was not

independent but interdependent. This meant a person's consumption would influenced

by lhe consumption pattern of others. Duesenberry's explanation of cross-section

behaviour was based on the idea that consumption patterns were particularly social.

People's tastes were so interdependent that an individual's consumption pattern may

be more influenced by the income and consumption of his friends, than by his own

income. An individual -ing Rs10.000 would consume more if he lives in a rich

neighbourhood rather than a poor one. Thus lower income families attempting to

keep up with the Jonesses would spend a higher proportion of their incorhe to the

high-income families. Duensenberry labelled the phenomenon as 'the Demonstration

Effect'.

. In formulating his theory of the consumption function, Duesenberry wrote, "A

real understanding of the problem of consumer behaviour must begin with a full

recognition of the social character of consumption patterns". Jhingan ( 1992). By the

social character of consumption patterns, he meant the tendency of human beings is

'to keep up with the loneses'. In other words the tendency was to strive constantly

toward a higher consumption level and to emulate the consumption patterns of one's

rich neighbours and associates. Thus consumer preferences were interdependent. It

was however the differences in relative incomes that determined the consumption

expenditures in a community. A rich person would have a lower average propensity

to consume (APC), because he would derive a smaller portion of his income to

maintain his consumption pattern. On the other hand, a relatively poor man will have

a higher APC because he would try to keep-up with the consumption, standards of his

neighbours or associates. This explained the constancy of the long run APC, as lower

and higher APC's would balance out in the aggregate.

The second assumption of the hypothesis has explained the fluctuations in the

aggregate consumption-income ratio, C/Y during a cycle. Given the irreversible

consumer standards, a fall in income during the cyclical downswing would not cause

a Proportionate fall in consumption because individuals would base their current

consumption patterns on higher previous levels of income and consumption,

represented by peak previous income and consumption. This meant ttiat during

recession the ratio of consumption to income (APC) would increase and the savings

ratio (APS) would fall because consumers would try to maintain their previous high

levels of consumption.

Figure - a. X axis = Income, Y axis = Consumption,

OC = Long run function, aa & bb = short run function.

The above figure (a) illustrates the ratchet effect of Lhe consumers. According

to Duesenberry, from peak income level Y1, suppose income falls, consumers move

back down on the short run consumption function aa. With successive falls in

income, consumption will fall much less relatively to the fall in income, with

consumers moving back down along the consumption curve aa and not along the long

run consumption function OC. When income rises, the consumption - income ratio

(C /Y) falls while the saving - income ratio ( S / Y ) rises as consumers move back up

along the short run consumption function aa. When income rises beyond its previous

level of Y 1, consumption becomes proportional to income, i.e, the consumption

income ratio remains constant as the level of income continues to rise and consumers

give way moving up along the long-run consumption function OC on which the APC

is constant. This is referred to as 'The Ratchet Effect' of the consumers. The ratchet

effect indicates that during a boom, consumption increases but as income falls,

fails to fall to previous levels distorting constancy of the consumption-

incolne ratio. According to Duesenberry, 'the ratchet keeps the economy from

slipping back all the way and losing all the gains in incomes acquired during the

preceding boom'.

The main criticism levied against Duesenberry's relative income hypothesis

is:

It was not true to say that consumption was not reversible. After all income

would be a limiting factor.

It has been found that a large increase in income causes generally a less than

proportionate increase in consumption.

Demonstration effect may not always be true. Consumption may be based on

preference rather than on imitation

* It is not fully proved that consumers of lower income group will emulate the

consumption pattern of higher income group.

The hypothesis for the present study was based on Duensenberry's first

ilssumption, Which spoke of the 'emulation factor', involved in the process of

According to Keynes there am two set8 of factors influencing or determining

the consumption function: (1) Subjective factors. (2) Objective factors.

1. Subjective Factors: The subjective factors were internal or endogenous in

nature. The factors remained more or less the same in the short period:

The Motive.of calculation-This involved the desire to enjoy interest and

appreciation because of consumption at a later stage.

The motive of precaution-It involved the desire to build up a reserve against

unforeseen contingencies.

The motive of Foresight-It involved the desire to provide for anticipated future

needs of the family at a later stage.

The motive of improvement- it involved the desire to enjoy gradually

increasing expenditure, to improve the standard of living.

The motive of independence-involved the desire to enjoy a sense of

independence and power to do things.

The motive of pride-This involved the desire to possess a fortune.

The motive of enterprise-This involves the desire to carry on business projects.

The motive of Avarice-This involves the desire to satisfy pure miserliness.

2. Objective Factors: The actual impact of the objective factors would vary

from organisation to organisation and also from institution to institution. However,

most of the factors were likely to remain more or less consistent in the short period.

The various objective factors were:

Change in Wage level- If the wage level increased, consumption function

would go up.

Wind fall gains or losses- Consumption would fluctuate according to gains or

losses in business.

Change in fiscal policy- Consumption function is said to be influenced by a

change in fiscal policy.

Change in income distribution- The consumption function of a gfoup could

improve if income was distributed in their favour.

Rate of Interest- A substantial rise in the rate of interest may induce people to

save more and consume less.

Population Growth- Demographic differences were also responsible for the

difference in consumption,

Holding of liquid Assets- It has been found that, as the holding of liquid assets

is high.

Financial policies of Corporations- when the ccrporations keep reserves and

distribute less to the shareholders, the consumption function of the share

holders would shift down wards.

Thc main propositions-of the psychological law of consumption are:

1 . When aggregate income increased, consumption also increases, but by a

somewhat smaller amount. This was so because, as income incieascd more

and mote of wants were satisfied. Therefore gradually less and less was being

spent on consumption with the increased income. Consumption expenditure

increased at a lass than proportionate rate, as compared to the rate of growth of

income.

2. Keynes postulated that aggregate consumption was a function of aggregate

current disposable income. The relation between consumption and income

was based on 'his law of consumption, which stated that when income

increased consumption expenditure also incrtascd but by a smaller amount. In

o t h a words, the consumption expenditure increased with increase in income

but non-pmportionlly. This notion of disproportional consumption function

implied that in the short run average and marginal propensities to consume do

not coincide, and that the marginal propensity to consume was positive but

less than unity (0 e MPC 4).

3. According to Keynes, the short-period MPC would be less than the long-

period MPC, beqausc 'a man's habitual standard of life usually had the first

claim on his income, and he was apt to save the d i f fe~nce , which discovered

. itself between his actual income and the expense of his habitual standard; or if

he did adjust his expenditure to changos in his income; he would, over short

* periods do so imperfectly (Keynes-1936).

4. Keynes stated that 'as a rule a greater proportion of income would be saved as

real income increaped'. This meant that even the long nm APC would fall as

income incrcastd and vice versa. This was so because 'the motives towards

accumulation acquired effective sway' only when a margin of comfort had

been attained'.

The main assumptions of the Keymian theory were:

i. The spending habits of the people remain the same. (Keynes used a ceterius

paribus assumption)

ii. Economic and political conditions remain normal.

iii. The economy was free and perfect without any interference. There existed

complete freedom and laissez faire.

The main theme of Keynesian theory is that the short period MPC is less than

the long period MPC because man's habitual standard of life is aptly to save the

diffemnce of his income. Thus, as income increases, a greater proportion of it will be

saved than consumed. This statement forms a part of the hypothesis for the present

study. Here the hypothesis is to prove if the proportion of savings is greater than the

proportion of consumption in higher education groups. The intervening variable,

education is used as a determining factor in influencing the proportion of savings in a

positive manner. Education plays a determining role in the type of employment and

l ikewise the income of women, in the o r g a n i d sector. Thus the independent

variable education is brought into hypothesis as an intervening factor to test the

direction of the two &pendent variables, consumption and savings in individual

households.

Occupational segregation is one of the most important and enduring aspects of

jabour markets. Occupational segregation by sex, which is also referred to as

discrimination. is detrimental to women. It negatively affects women's status and

income and consequently many social variables such as mortality and morbidity,

and income inequality. The persistence of gender stereotypes also has

"egative effects on education and training and thus causes gender-based inequalities

to be perpetuated into future generations. There are various theories on

discrimination put forth by different economists to highlight the various causes, which

have led to the segregation of women from the main stream of economic activity.

Theories of discrimination are broadly classified into three broad categories:

1. Neo classicallhuman capital theories

2. Institutional and labour segmentation theories.

3. Statistical discrimination theory.

1. Neo classicaVhuman capital theory:

.4:

Theodore Schultz was the main propounder of the Human Capital Theory, also

called the neo-classical theory. The Neoclassical theory assumed that workers and

employers we= rational and that labour markets functioned efficiently. According to

fhe theory, workers m k out the best-paying jobs after taking into consideration their

Own personal traits and prefeences. Employem on the other hand prefer males due to

.hous reasons. The theory has looked at the aspect of segregation from the supply

and demand point of view.

On the supply side, Nco-ClassicaVHuman Capital theories stressed the lower

levels of female human capital in terms of both, of what women brought to the labour

market, as well as what they acquired after joining the labour market. The

productivity-related variables of education and labour market experience were

believed also to affect women's choice of occupation. In low-income countries, with

small formal labour markets, there were often many more educated, qualified persons

of both sexes than the formal sector jobs. This implied, all else being equal. women

should be reasonably well represented in a wide range of occupation in the formal

sector. If this was not the case, it probably implied the presence of discrimination.

Secondly it was found that many parents give their daughters less education than they

gave their sons, and that women accumulate less labour market opportunities than

men. Neo-classical theories also stressed the fact that women were almost

exclusively responsible for housework i d childcare around the world. The

additional family responsibilities enabled women to obtain less work experience than

men owing, either due to early and permanent withdrawal from the labour force, or to

temporary withdrawal in order to care for young children.

On the demand side. according to neoclassical theory. many of the factors

influencing women's and men's p~cfemnces for particular occupations also influenced

employerss preferences or male of female workers. Thus jobs requiring a relatively

high level af education w e e more likely to be o f f e d to men than to women, as jobs,

where experience and on-the-job training wore relatively important. In addition

women were oftm considwed to be highercost workers because of a number of

supposadl~ higher indirect labour costs associated with women workers. Womm were

often found to be late to work. had higher labour turn over rates, which proved to be

an indirect cost for employers, who had to find and train new workers.

The assumptions of this theory namely: higher direct and indirect labour costs

were associated with fcmala workers rather than with male workers especially in view

of the relative paucity of empirical evidence. The results of the studies in Third

World countries (by Anker and Hein, 1985 and 1986) called to question a number of

the assumptions described above. Firstly, though, individual women were found to

have higher absenteeism rates, and many employers stressed the importance of this

factor, on an average, the d i f f e ~ n c e between male and female absenteeism rates

proved to be small. This unexpected result was due to the greater likelihood of men

leaving for another job. and of women leaving their jobs for family reasons.

Secondly, It was found that labour laws and regulations sometimes directly affected

the demand for women workers. Protective legislation at times prohibited women

from working in certain occupations or under certain conditions.

2- Institutional and Labour segmentation Theories:

The Segmented Labour Market model as propounded by Doeringer and Piom

(1971) had its origin in the Dual Market theory, which grew out of the studies of the

P~orninantly black urban poor in the United States. The dual labour market theory

divided labour market in to two categoria; the primary =tor and secondary sector

and the two sectors were distinguished by a set of general characteristics. Jobs in the

sector wen characterid by low wages and fringe benefits. poor working

conditions, high labour turn over, little chance of advancement and capricious

supervision. On the other hand, the primary sector characterised itself with permanent

better working conditions. higher wages and significant opportunities

for advancement. Jobs in the secondary sector offered little or no training, and were

considered 'dead end jobs', whereas those in the primary sector provided extensive

training. most of which in their view were specific rather than general.

Jobs in the primary market were of an internal labour market, which was

highly structured and regulated. described as an administrative unit within which the

pricing and allocation of labour was governed by a set of administrative rules and

procedures. Doeringer and Piore asserted that there was limited worker mobility from

the secondary sector to the primary sector. Workers without training were not in a

position to compete with specifically trained workers for jobs within an intemal

labour market. Secondly they argued that employment in the secondary sector often

made a worker unsuitable for the primary sector job. Secondary sector employment

devzloped a set of work habits- lack of promptness, inattentiveness to task,

absenteeism, lack of respect for authority, petty theft, which may be tolerated in the

secondary sector but wete inappropriate for the primary sector.

Wages in the primary sector were e v e equilibrium level.. though there may

have been an m a s supply of qualified workers. The authors were of the view that

must be rationed among the queue of eligible workers and it was in the

process that discximination. nepotism, personal contacts or even luck play a major

role. The fortunate ones who do acquire primary sector jobs enjoyed the benefits of

the internal labour market. but those 'rationed out' sought employment in the

s e c ~ n d w sector. They argued that in practice, the workers most likely to be rationad

out were those who are the traditional victims of discrimination based on race, region

and gender and they become the predominant workforce of the secondary se-r.

Another economic theory related to labour market segmentation is, the

Statistical Discrimination theory. This was based on the assumption that there were

differences on an average, in the productivity. skills, experience, etc of distinct groups

of worker and high search and information costs associated with recruitment and

promotion decisions. Under such circumstances it was argued that rational employers

discriminated against groups of workers when differences on average, between the

abilities of persons from different groups cost less to sustain than the decision-making

costs associated with identifying suitable individual workers of either sex. The

statistical discrimination theory thus provided an explanation for how some

occupations are almost entirely male dominated even though individual women had

gre6ter ability, more education etc than individual men.

3.4.2 Female Marginalisation Theory:

An improvement in the economic role of women, especially in terms of

lem~loyment, is very often conside& to be an essential precondition for improving

their status and contribute to economic and social development. WomenSs

marginalisation is ~ t ~ ~ i y e d as the result of a mixture of historical, economic and

cu~tural factors and not as a necessary effect of any particular economic and political

system. The female marginalistion which emerged in Latin America (Saffioti-1978)

had empirically proved that impcct ive of the differing rates of work participation of

women between developed and developing countries. Then existed a general

that women were subjected to labour market discrimination and segregated

into low paying and low status jobs while they were pushed to the periphery in tenns

of choice of their employment.

The female marginalisation thesis, in its generic sense, argued that women

were progressively marginalised from production in the process of industrialisation

and economic development. The central idea of female marginalisation thesis was

drawn from marxist and socialist feminist writing. They considered that women's

marginalisation was a product of the capitalist organisation of production and use of

labour. The separation between production and reproduction under capitalism and the

hierarchical structuring of capitalist enterprises, resulted into segregation and

marginalisation of women's work. Marginality as a structural phenomenon was the

result of imbalances between the labour requirements of the capitalist sector. Key

aspects of the phenomenon were exclusion from the capitalist sector, particularly from

manufacturing and absorption into the subsistence fringe of the economy, which was

also referred to as a marginal sector (Scott-1986).

Female marginalisation thesis also argued that women were marg ina l id from

production in the process of industrialisation and economic development.

The Female marginalisation thesis'has been manifested in various forms:

1. Female marginalisation meant exclusion of women from productive

employment, manifested from a decline in the overall work participation rates

of women or decline in the share in wage and salary.

2. Female marginalisation also meant concentration of working women in the

periphery of the labour market. which reflected in over crowding of women in

marginal occupations.

3. Female marginalisation would be manifested through segregation of women

into certain categories. which were low in occupational hierarchy, pay, and

status, which was commonly referred to as ferninisation or segregation in

employment.

3.4.3 Female Marginalisation thesis in the Indian Context:

-. India is predominantly an agricultural economy. The primary sector

accounted for nearly 40 percent of the GDP and employed 69.3 percent of the

workers. Over the yeam the share of agriculture declined and that of the

manufacturing and services increased. Women employment in India has been

analysed from the following interrelated dimensions: (1) Work participation rates

(2) Economic Sectors of employment (3) Status of employment.

1. Work Partidpation rrrteo:

Between 1950 and 1985 the overall work participation rates of both sexes

declined. However the decline in the overall work participation rate of women is

&atper, and is more than throe times to that of men. If one looked at the age and

work participation trends. the declining female participation rates. become

apparent. Between 1950 and 1985 there was 9.5 prcc;nt decline in the male

rates, while the corresponding figure for females was 31 .I percent. The

evidence showed that work participation rates of women in India were not only very

low but also declined rather sharply. The participation rates of males had also

dropped, but this was primarily due to the decline in the participation rates of the

school age population.

2. Employment by Economic Sectors:

Nearly 80 perrent of women workers in India are engaged in agricultural

activities. Women in the Indian context belong mainly to the .latter category. The

share of men declined in the household industries while that of women showed an

increase. Many studies (Subramanian 1977. Banerjee 1985. Baud 1992) have found

that'pattern of women employment being excluded from the most skilled jobs to less

paid jobs and in industries. Even in the higher paying sectors the advancement of

women was rather slow as compared to men.

3. Status of Employm&t:

Employment of women in India is increasingly casualistd. The degree of

cnsualisati~n of labour was taken as an index of marginalisation. since casualisation

was associated with insecurity of employment (Parthasarthy 1997). Casualisation of

women employment in India had two dimensions. First to avoid provision of

maternity benefits, or creche facilities, employers in the large scalc manufacturing

industries recruited women as casual labour. Second, with the introduction of sub-

contracting in the production process, employment in general, and that of women in

particular was increasingly transferred from the organised to'unorganised sectors (the

I98 1 census makes a distinction between man and marginal workers).

Marginal workers were those who had not worked for the major part of the

preceding year. In the 1980's, women accounted for only 20.2 percent of the total

main workers in India. (Verghese 1989). However, women accounted for nearly 84

percent of the total marginal workers. Eighty five percent of the marginal workers in

rural areas and 63 percent in urban areas were women.

The economic transformation process in India had followed a capitalist path of

development (Patnaik 1979) the only difference being that, unlike the west the Indian

economy did not witness a stage of competitive capitalism, but showed symptoms of

monopoly capitalism in its infancy. It can thus be argued that it was not the level

alone but the very path of capitalist development that facilitated the process of

marginalisation of women. The Indian evidence showed manifestation of different

forms of marginalisation of women in the process of development. Women were

increasingly excluded from productive work, and concentrated in marginal

occupations where they were incnasingly ca~ualised in terms of employment. Thus

empirical evidence revealed a plausible ground to argue for a validation of female

marginalisation thesis in India.

The above theories viz, the human capital theory, labour segmentation theory

and statistical discrimination theory served as a backgrourid in formulating the

hypothesis. The factors like demand and, supply conditions of labour, average

productivity of labour, which acted as a base for the neo classical theory of

discrimination were found to be similar to the present investigation. Statistical theory

of discrimination also seemed to be similar, to the factors, which influenced the

present hypothesis. For instance. the dual labour market was found segmented into

primary and secondary market, based on the quality of labour, which was found to be

very similar to the public and private sector in the present study. The hypothesis

slates that discrimination based on employment and wages me more prevalent in the

private sector than public sector. The empirical findings could either support or refute

the hypothesis. The female marginalisation thesis, which drew its empirical base

from various Latin American studies, were used by various social scientists k a

framework in their studies to highlight the principle of marginalisation of female

labour in developing countries. The study has also used the female marginalisation

thesis as a theoretical base.

A brief framework of the other theories viz, Engels law and Veblon effect is

also discussed in the study. Though these theories were not used ars a background ih

formulating the hypothesis for the present study, they do help to provide an

of the t p s of relationship, which exists between the different

variables focussed in the current investigation.

3.5 The Engels Curve:

The Engels curve, named after Ernst Engel (1821-96), head of the Prussian

Bureau of Statistics, was the first to describe the relationship between the level of

income and the consumption of certain commodities. Engel discovered that the

proportion of income spent on f w d tends, on the average, to decrease as income,

increased, while other things remain equal, a relationship known as Engels law.

On the basis of his studies, he arrived at the conclusion that. as income

increased, the percentage of income spent on food gradually decreased. In other

words the income elasticity of demand for food was found to be less than unity. The

law stated that the smaller the income, the larger the percentage of it spent on food

and, subsistence. As income increased, the proportion of income spent on food

gradually decreased (~ukherjee-1996).

The above illustration explains the behaviour of an individual consumer and

the consumption pattern. Engels curve for food is plotted from the information given.

Money income is measured along the vertical axis and units of food consumed along

the horizontal axis. Point PI corresponds to a budget of Rs 2400 and consumption of

1.3 units and point P2 corresponds to an income level of Rs 3750 and consumption of

2 units.

The consumer discussed in our illustration is atypical, since he spends about

the same proportion of his higher income on food as he did of his lower income. The

general characteristic of an Engel curve plotted for a normal good is that it is

positively sloped: showing that as income increase, consumption tends to increase.

This positive relationship between income and consumption was noted empirically

since the mid 1800's has become one of the key concepts. The consumption of

certain stable commodities, such as salt, may have a vertical Engel curve, because

consumption remains constant almost regardless of income. The consumption of

most necessities such as food and clothing will have an Engel curve with an

increasing slope as income increases indicating that additional ~onsum~t io 'n of these

increases less that proportionately as income increases.

The Engels law is used in the study to investigate into the type of relationship,

which exists between Income and Consumption with the different income groups. in

the present study. ' .

3.6 The Veblen Effect:

Thorstein Veblen in 1899 used the term Conspicuous consumption for the first

time to denote the consumption involving luxury goods and services. He stated that

conspicuous consumption primarily to be concerned with ostentatious display of

wcalth. According to him, the wish to impress others with one's ability to pay high

prices is the reason behind consumption. Conspicuous consumption is a clear

manifestation of the desire to display one's economic ability, hence the direct utility

of commodities is of no prime interest. Veblen considered the leisure class as his

cxample because leisure class set the standard for others to follow. He used the

concept of ownership to explain the motive force for conspicuous consumption

tracing, various phases of ownership. Conspicuous consumption as Veblen thought,

was mostly determined not by the utility of commodities that individuals purchased.

but by the status and prestige considerations. It brought honour and esteem to the

individual, who enjoyed a higher social standing, in the community to which he

, belonged. Gradually it became inevitable for others to emulate so that they could

1 enham their sai.1 wognition. His theoretical framework b& on the

t r a n s i t ~ v nature of growth and development, which' we= meant for traditional

societies, achieving societies and affluent societies. Consumption of consumer

durables could be influenced by a number of factors in the individual household. The

theory of Veblen was set out to understand the basic factors, which would influence

and change the direction of consumption.

The aforesaid theories have helped to frame the hypotheses of the study. They

have also served as a source to understand the inherent factors, which could bring a

phenomenal change to particular situation.