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Why Are There So Few Female Entrepreneurs?

Thursday, October 14, 2010

There’s a politically correct explanation and a politically incorrect one. Only one of them is right.

Men are much more likely to run their own business than women. According to a recent report by Steve Hipple of the Bureau of Labor Statistics, in 2009, the rate of unincorporated self-employment among women was 5.6 percent compared to 8.3 percent among men. For incorporated self-employment, the rates were 2.3 percent for women and 5.4 percent for men. Moreover, analysis of the Current Population Survey shows that after taking into account the effect of age, education, and marital status, women are almost 60 percent less likely than men to go into business for themselves. Finally, data from the Panel Study of Entrepreneurial Dynamics shows that the odds that a man is starting a business at any point in time are double that of a woman.

These patterns are consistent across countries. In 2007, the Organization for Economic Cooperation and Development (OECD) reported that across the OECD countries, male self-employment was four percentage points higher than female self-employment.

Women are almost 60 percent less likely than men to go into business for themselves.

These patterns have not changed dramatically over time. In 1993, women accounted for 34.1 percent of the self-employed in the United States, while in 2009 they accounted for 34.0 percent.

Why are men much more likely than women to be entrepreneurs?

The Politically Correct Explanation

The politically correct explanation for the low rates of entrepreneurship is that women face obstacles to starting businesses. As the argument goes, they have less access to capital and worse access to the education and business experience necessary to found companies.

However, the politically correct explanation does not appear to be economically correct. There is little evidence that women lack sufficient access to the capital needed to start businesses. Numerous studies show no statistical difference between men and women in the tendency to access capital, after taking into account the nature of the businesses that the men and women are creating.

There is little evidence that women lack sufficient access to the capital needed to start businesses.

Moreover, the vast majority of businesses are financed solely by their founders, making personal wealth a more important determinant of access to capital than what investors, banks, or other capital providers are willing to provide. Once founder capital is taken into consideration, the data show that women have more access to capital than men. Women tend to start less capital-intensive businesses than men, but the household wealth of men and women is the same, on average. Therefore, the average woman has access to a higher share of the capital needed to start the typical business than the average man.

There is also little evidence that women lack the education and work experience to start businesses. On average, women have more education than men and are more likely to have experience in managerial and professional occupations. Therefore, a lack of education or work experience cannot account for the lower rate of start-up activity among women.

The Politically Incorrect Explanation

Male students have been more interested in being business owners or proprietors in every year since 1976.

The politically incorrect (but economically more accurate) explanation is that women are less interested in running their own businesses. Surveys conducted in more than 20 countries, including the United States, showed that women were more likely to prefer to work for someone else and were less likely to want to have their own businesses.

These preferences are not something that develops after women enter the workforce. Using data collected by the Cooperative Institutional Research Program (CIRP), which has surveyed college freshmen since 1976, John Pryor of CIRP and E.J. Reedy of the Ewing Marion Kauffman Foundation (EMKF) found that male students have been more interested in being business owners or proprietors in every year since 1976 (see figure below). In fact, the size of the gap is wider now than it was back in 1976.

Male and Female Students’ Aspirations to Be Business OwnersShane pic 1.jpg

Source: John Pryor and E.J. Reedy,  Kauffman Foundation, 2009. “Trends in Business Interest Among U.S. College Students.”
 

Pryor and Reedy also show that, for nearly 40 years, male students have been more likely than female students to say that being a successful business owner is a major personal goal.

Other studies show that the difference in the preference for entrepreneurship emerges well before kids enter college. A book by Marilyn Kourilsky and William Walstad shows that female high school students are 14 percentage points less likely than male high school students to say that they want to own a business.

Women are much less likely than men to become entrepreneurs and this pattern does not seem to be changing. If we want the rate at which men and women start businesses to be more equal, then we need to stop falling back on politically correct but inaccurate explanations and address the root cause. As early as high school, women are less interested than men in having their own businesses.

This pattern suggests that the solution to the entrepreneurship gender gap lies in getting girls to be more interested in owning businesses when they grow up.

Scott Shane is the A. Malachi Mixon III Professor of Entrepreneurial Studies at Case Western Reserve University. He is the author of Born Entrepreneurs, Born Leaders: How Your Genes Affect Your Work Life.

FURTHER READING: Shane wonders “Why Small Businesses Aren’t Hiring,” explains why credit proposals offer “No Way  to Help Small Businesses,” and wrote “From Start-up to Stop: The Recession and Entrepreneurship.” Arnold Kling asks, “What’s Stalling the Next Economic Revolution” and Richard Rogerson observes that European workers are suffering from “Labor Pains.”

 

Image by Darren Wamboldt/Bergman Group.

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