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United States Small Business Administration
Office of Advocacy
RS 151
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Purpose

Despite the rapid increase in the number of businesses owned by women, there has been little research on the financial success of women business owners. The Office of Advocacy, as part of its continuing efforts to understand the role of women business owners, sponsored this project to examine the financial success of women business owners, relative to men.

That women as employees earn less than equally qualified men has been well established by numerous studies. One source of these lower earnings for women is discrimination against women by employers. (Discrimination is taken to be any earnings differential that remains after all other "explanatory" determinants of income are statistically controlled.) Women who are business owners would not suffer labor market discrimination, and therefore, business ownership should offer women a more equal opportunity compared with employment. However, there may be discrimination against women in product or credit markets that could reduce the earnings of women business owners. This could make business ownership a less equal opportunity for women.

Scope and Methodology

The study focused on the earnings of 76,959 women who reported that they were self­employed in their own incorporated or unincorporated businesses. Data came from the Public Use Microdata Samples (PUMS) of the 1990 Population Census. The study compares their earnings with those of self­employed men for the 1990 census year. Earnings differences between self­employed men and women were then compared with earnings differences between men and women who were employees.

The researchers examined differences in characteristics that affect earnings, such as age, education, occupation, marital status and the presence of children. Other determinants of earnings from business ownership could not be accounted for because they are not recorded in the Census. Among the unmeasurable variables were the age and size of the business from which self­employment earnings were derived, the quality and type of education, and the extent of interruptions in the owner's work history. Gender earnings differences that should be attributed to the excluded factors can be mistakenly attributed to discrimination; therefore, the impact of discrimination reported in this study may be overstated.

Highlights

The results show that the women in these small businesses earn less than a similar sample of men business owners, and that the gender gap for women who are self­employed is larger than the gender gap for women employees. The larger gap for self­employed women was consistent across many subgroups of women including married and unmarried, college educated and high school educated, those who have never had children and those who have had children.

• While the average earnings of self­employed women ($16,652) were 47.9 percent lower than the average earnings of self­employed men ($31,937), the average earnings of women employees ($20,152) were 35.3 percent lower than the average for men employees ($31,123).
• The study examined the effects of non­gender determinants of earnings, including differences in education, hours worked, race, full­ or part­time status, physical disabilities, geographic location and occupational choice. The residual gender earnings gap between women and men who were self­employed was found to be larger (33.1 percent) than that between women and men employees (21.8 percent).
• Although the computation of the gender gap was able to control for a large number of factors that determine earnings, some factors were omitted because they are omitted from the Census - especially those that bear on the size and age of the business and the respondent's labor force history.
• The magnitude of the residual gender gap is related to marital status. The gap was smallest among single men and women, and largest among married people - but in both cases the gap was higher for those who are self­employed than for employees. Specifically, the residual gender gap was 16.1 percent for single self­employed workers, compared with 12.4 percent for single employees; the gap was 38.4 percent for married self­employed workers, compared with 28.3 percent for married employees.
• The differences between self­employed women and women employees with and without children suggest that women who are self­employed have greater flexibility in balancing household and business responsibilities than do women who are employees.
• An analysis of discrimination among employees by firm size and occupation found that among employees in small­firm­dominated industries, the residual gender gap was 21.8 percent; among employees in large­firm­dominated industries, the residual gap was 16.8 percent. In occupations where employees have a large amount of direct contact with clients, the residual gap between men and women employees was 25.0 percent; in occupations where employees have little direct contact with clients, the residual gap was 12.2 percent.
• The results of this study indicate that women business owners face more obstacles in attaining income equality with men business owners than do women employees vis­à­vis men employees. To the extent that the gender earnings gap reflects gender discrimination, the study suggests that self­employed women are more likely to be affected by buyer discrimination. The analysis of the existence of consumer discrimination across occupations suggests that this source of discrimination is a significant factor behind the large gender gap for self­employed workers.
  

Ordering Information

The complete report is available from:

National Technical Information Service
U.S. Department of Commerce
5285 Port Royal Road
Springfield, VA 22161
(703) 487-4650
(703) 487-4639 (TDD)

Order Number: PB95­187365

Cost: A04; A01 Microf.

*Last Modified 6-11-01