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This Women’s History Month, we turn our focus to an issue that reverberates through the corridors of entrepreneurship – the gender pay gap and its profound impact on women-owned businesses. Let’s shed light on how gender inequality isn’t just a buzzword; it’s influencing women’s decisions in a big way.

We’re all familiar with the gender wage gap, right? One study (you can find all the nitty-gritty details HERE) suggests that the gender wage gap is a driver, motivating women to kick-start their own businesses. Studies consistently show that women, on average, earn less than their male counterparts and women from under-represented communities earn on average even less. This wage discrepancy not only limits personal financial resources but also presents a substantial hurdle for women entrepreneurs seeking capital to start or grow their businesses. Access to funding is a crucial factor in the success of any venture, and the gender pay gap compounds the challenges women face in securing the necessary resources. 

Women are also facing other opportunity costs- essentially, weighing the pros and cons of their options when it comes to financial security. Research has found that when there’s more socioeconomic gender inequality, the perceived opportunity cost of entrepreneurship for women actually goes down. Translation? The barriers seem a bit lower, making entrepreneurship a more attractive path. Especially, when factoring in other decision points such as increased flexibility in one’s schedule or the ability to involve their family in their business. 

This type of women’s economic resilience doesn’t just impact women on an individual level; it has ripple effects on the broader community’s entrepreneurship scene. Despite the challenges income inequality creates, it also in many cases fuels women’s initiative to start their own businesses. 

It’s not just about breaking glass ceilings; it’s about creating an environment where women can confidently chase their entrepreneurial dreams, juggle all that comes with life, and find equitable upward economic mobility.

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Collectively, we show that women choose to be more entrepreneurial when their status is lower, which reflects women’s economic resiliency.

• The more entrepreneurship activity the greater the employment level is (Doran, McCarthy, and O’Connor, 2016). A lower wage for women reduces the cost of doing business at the state level. This result establishes a strong correlation between the gender wage gap and the economy, showing that women’s status is an economically significant cost factor in the economy. We next demonstrate a connection between the gender wage gap and the state-level cost of business and entrepreneurship. We show that both business costs and the gender wage gap are directly related to the aggregate entrepreneurship index; lower business costs and a greater gender wage gap increase the aggregate entrepreneurship index in the state. The introduction of business cost reduces the magnitude and significance of the gender wage gap variable coefficient, confirming that business cost is a channel between the gender wage gap and aggregate entrepreneurship in the economy.
• A greater gender wage gap reduces women’s opportunity cost for entrepreneurship activities because a lower wage reduces the value of continuing as an employee of others, thereby encouraging more entrepreneurship by women in states where the gender wage gap is greater
• Financial necessity is the main motivation for 10% (e Global Entrepreneurship Monitor (GEM))
  • In countries where jobs for women are scarce, women’s opportunity cost of entrepreneurship is very low and, hence, women’s entrepreneurship participation is high
• When women have low access to such socio-economic benefits in a day job as an employee working for others, then their opportunity cost of entrepreneurship is lower.
  • Familial factors are important in the entrepreneurship decision of women to start their businesses, independent of financial factors (Bonaforte, 2022) such as the gender wage gap. These results support prior literature that shows that the motivation of women entrepreneurs is often strongly motivated by socioeconomic factors related to family
• Women’s entrepreneurship decision, we argue that gender inequality is related to women’s opportunity cost for entrepreneurship, both for financial channels such as the gender wage gap, and for socio-economic channels such as access to childcare and political engagement. We confirm that financial factors such as the gender wage gap motivate women to be entrepreneurial (Bonaforte, 2022). But we also show that other socio-economic factors connected to familial issues and family/work balance matter, too, over the above financial factor. We view our hypotheses as a demonstration of women’s resiliency in the labor market, and this resiliency has implications for state entrepreneurship activity. 

From the perspective of women, a greater degree of financial or socioeconomic gender inequality reduces women’s opportunity cost of entrepreneurship. The opportunity cost of a decision is a fundamental concept in the field of economics, with opportunity cost considered a driving determinant in an economic decision-making process. Opportunity cost is the value of the next best alternative, that is, the cost of what else one could choose to do. In labor economics, opportunity cost is the key parameter in many models of employment choice 

Bonaparte, Yosef, The Gender Wage Gap and its Effect on Women’s Entrepreneurship (March 17, 2022). Available at SSRN: https://ssrn.com/abstract=4483412 or http://dx.doi.org/10.2139/ssrn.4483412