Why are there fewer female entrepreneurs than men?

11 October 2021

By Nick Powdthavee

Before the pandemic brought business to a virtual standstill, self-employed entrepreneurs contributed an estimated £305 billion to the UK economy in 2019, according to the Association of Independent Professionals and the Self-Employed (IPSE).

Yet the evidence tells us, in both developed and developing economies, that this contribution could be far greater as women are not participating in entrepreneurship to the same extent as men. 

With a 'levelling up' agenda central to the UK Government's intentions to bounce back better economically from the pandemic, attempting to tackle this entrepreneurial gender gap would seem a sensible decision for politicians and policymakers. The challenge is establishing which policy levers might make a difference.

Both the overall percentage of women in the self-employed workforce and the percentage of women of working age who are self-employed (the rate of self-employed) have remained persistently below that of men. A 2012 Organisation for Economic Co-operation and Development (OECD) study Closing the Gender Gap: Act Now showed that only 25 per cent of business owners across the EU were female, a figure that had hardly changed over the previous decade. While in 2018, the OECD reported that women were still only about 60 per cent as likely as men to be self-employed in the EU. Of the 4.8 million self-employed in the UK in 2018, about one-third were women.

More recently, a March 2021 House of Commons briefing paper Women and the Economy noted that women comprised 34 per cent of the self-employed workforce, while 11 per cent of women were self-employed compared with 19 per cent of men – a substantial eight percentage points entrepreneurial gender gap in the rate of self-employment. If anything, the impact of COVID-19 is likely to reduce female self-employment, as a greater proportion of female entrepreneurs work in hard hit sectors such as tourism and arts and entertainment.

This is not just an issue of equity, but economic prosperity. Research in mid-2019 by the Boston Consulting Group suggested that narrowing the entrepreneurial gender gap could increase global GDP by three to six per cent ($2.5 trillion to $5 trillion at that time).

If governments want to maximise the economic boost from entrepreneurship as they recover from the effects of the pandemic then the route to becoming an entrepreneur should be as accessible as possible to all aspiring entrepreneurs, regardless of gender.

While there is substantial research literature on the characteristics of entrepreneurs, there have been fewer attempts to understand the reasons behind the gender disparity. Opinions on its causes are mixed and little progress has been made in closing the gap. One of the main challenges is disentangling possible contributory factors and their effects.

A good example is efforts to gain greater insight on the difference that money or, more particularly, access to capital makes. Studies show that, other things being equal, getting external funding for an entrepreneurial project is harder for women. Even if the business plan is equally attractive, men are more likely to get the start-up capital they need to get the business running.

Elsewhere, though, research in the field suggests that access to capital is less of an issue for women than non-pecuniary factors such as time flexibility, the ability to work from home and childcare arrangements. This difference in perspectives has important implications for narrowing the entrepreneurial gender gap.

Establishing the importance of access to funding is not easy. It is hard to isolate the impact of money in terms of its effect on the probability of becoming an entrepreneur. But what if we could observe what happens to a large population of individuals when they are given money with no-strings attached. How would this affect their likelihood to become entrepreneurs? Using an innovative approach to studying the link between access to funding and the path to becoming an entrepreneur, it is possible to get a better idea of the role funding plays in contributing to the entrepreneurial gender gap.

How to close the entrepreneurial gender gap

The British Household Panel Survey (BHPS), launched by the University of Essex in 1991, is an annual survey in the UK following about 10,000 households and 30,000 individuals. The variety of information gathered includes the views and opinions of respondents as well as data on education, employment and household finances.

Usefully, for the purposes of studying the entrepreneurial gender gap, the BHPS includes data on both self-employment and gambling wins since 1997. Householders are asked:  "About how much in total did you receive? (win on the football pools, national lottery or other form of gambling)." The majority of such wins are likely to be via the national lottery as some 60 per cent of UK adults play the lottery.

Regardless of the source of winnings, by examining the relationship between windfalls of this kind and respondents that subsequently identify as self-employed myself and my research colleagues Sarah Flèche, of the Centre d'Economie de la Sorbonne, University of Paris, and Anthony Lepinteur, of the University of Luxembourg, were able to investigate the causal relationship between an increase in capital, the likelihood of becoming self-employed, and the entrepreneurial gender gap. Because if wealth and access to capital is a less important factor for women than for men in the decision to become self-employed, as some research suggests, then receiving a windfall would be expected to lead to proportionally more men than women becoming self-employed following that win.

But this is not what the research showed. For a start, the findings reinforced the disparity in entrepreneurial activity between men and women. Whether you take the sample overall or just lottery winners alone, men were roughly three times as likely to be self-employed. All things being equal, women were 7.2 percentage points less likely to be self-employed than men (among older workers, aged 40-65, the gap was even wider). 

Moving onto the impact of money on the probability of becoming an entrepreneur, the findings clearly demonstrate that given access to capital, in this case in the form of a windfall lump-sum, both men and women are more likely to be engaged in entrepreneurial activity a year later.

Furthermore, the findings show that the likelihood of women becoming self-employed increases in proportion with the size of the windfall. While a key related finding shows that, compared to the average winner, women in the top 25 per cent, based on the amount won, are 20 per cent more likely to become self-employed – so the entrepreneurial gender gap narrows. 

The combination of details about gambling wins and self-employed status contained in the BHPS data provides a unique opportunity to settle at least one debate. Crudely stated, when it comes to creating entrepreneurs, money matters. It matters for both men and women, yet women have greater problems accessing external funding.

Assuming that it is desirable to maximise opportunities for aspiring female entrepreneurs to fulfil that ambition, and to level-up across genders in terms of entrepreneurship participation, the findings suggest there are a number of actions that policymakers can take. Perhaps the simplest would be to provide free money – grants with appropriate conditions attached, for example - to women who want to become self-employed. Less straightforward would be policy measures that encourage the private sector to create easier access to capital for women.

While these steps will not close the entrepreneurial gender gap entirely, our evidence suggests that they should go some way towards narrowing it. Making the concept of levelling up, as part of the post-pandemic recovery, more tangible in the process.

Further reading: 

Flèche, S., Lepinteur, A. and Powdthavee, N. (2021) "The importance of capital in closing the entrepreneurial gender gap: a longitudinal study of lottery wins ", Journal of Economic Behavior & Organization, 188, 591-607.

Flèche, S., Lepinteur, A. and Powdthavee, N. (2020) "Gender norms, fairness and relative working hours within households", Labour Economics, 65, 101866.

Flèche, S., Lepinteur, A. and Powdthavee, N. (2018) "Gender norms and relative working hours : why do women suffer more than men from working longer hours than their partner?", AEA Papers and Proceedings, 108, 163-168.

 

Nick Powdthavee is Professor of Behavioural Science and teaches the Economics of Wellbeing on the Distance Learning MBA and on the Undergraduate programme.

Follow Nick Powdthavee on Twitter @NickPowdthavee.

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