5 ways policy could close the gender gap in entrepreneurship

Despite a closing of the gender gap in labour force participation rates in OECD countries over the past 25 years, women continue to be under-represented in entrepreneurship.

A new report from the OECD and European Commission – the Missing Entrepreneurs 2017 – shows that in 2016, men were, on average, 1.7 times more likely to be self-employed than women. Among OECD countries, this gap ranged from 1.1 times in Mexico and Chile, to 3.1 times in Ireland. Similarly, the Global Entrepreneurship Monitor – which is an international household survey on entrepreneurship – estimates that men are 1.6 times more likely to be new business owners.

It is also important to note that self-employed women, on average, tend to operate different types of businesses than men. The differences can often be explained by the sector in which they operate. Nearly one-quarter of self-employed women operate in health and social work sectors and service sectors including washing and cleaning of textile products, hairdressing and beauty treatment, and physical well-being activities. Only five percent of self-employed men operate in these sectors. Consequently, women-owned and managed businesses appear, on average, to be less oriented towards achieving high growth and creating substantial employment for others.

Moreover, self-employed women tend to operate smaller businesses than men. They are two-thirds as likely as men to have employees or operate in teams. And female entrepreneurs work, on average, fewer hours per week than male entrepreneurs.

Nonetheless, women-owned businesses are as sustainable as those operated by men. Business survival rates for women-owned businesses were approximately equal to those of men-owned businesses in many OECD countries and the gap in business survival rates is small in others.

It is clear that women are less involved in entrepreneurship and that women entrepreneurs often operate different types of businesses than men. However, the reasons behind this are not so clear-cut.

Women often have different motivations for becoming an entrepreneur, and therefore have different intentions. Some seek flexibility to be able to better manage their work-life balance, while others start businesses to avoid the “glass ceiling” in that may be encountered in employment.

Culture and social attitudes also have an important role in shaping women’s entrepreneurship. Traditional gender roles may lead women to self-restrict their entrepreneurship activities to “feminised” professions, sectors and business fields. In addition, gender roles may also limit women entrepreneurs’ access to critical resources such as human, financial and social capital.

Market failures can also make it more difficult for women to start and be successful in entrepreneurship. One of the greatest challenges cited by most entrepreneurs is the lack of entrepreneurship skills. Women entrepreneurs typically have less experience in self-employment and as a result, on average, have less developed management skills and smaller business networks.

The other significant challenge is access to finance. Women entrepreneurs generally have less capital and are more reliant on owner equity than men. There is also a large body of research that points to gender-based differences in credit terms, such as higher collateral requirements and interest rates, despite controlling for characteristics like sector and business size. Women are also less likely to report that they can access start-up financing. Consequently, they are more likely to be discouraged borrowers, i.e. people who do not apply for loans because they believe that they will not be successful.

While it is important for individuals to have a range of choices in the labour market, women tend to have latent entrepreneurial potential that is not realised. Policy makers can help to unlock this potential. The objective should not be to eliminate all differences between men and women entrepreneurs, but instead attempt to remove institutional influences that affect motivations and intentions and correct market failures that constrain women’s entrepreneurship. A new OECD policy brief [insert link] highlights five ways that policy can address the gender gap in entrepreneurship:

1. Improve the institutional conditions. Entrepreneurs are strongly influenced by role models and social context. It is therefore important to promote women entrepreneurs as role models and ensure that the education system is gender-neutral and does not discourage women from going into STEM fields (i.e. science, technology, engineering and mathematics). Another aspect is family and tax policies, which should seek to increase female labour market participation and female entrepreneurship.

2. Improve access to entrepreneurship skills programmes. Traditional policy action that supports the acquisition of entrepreneurship skills include entrepreneurship training, coaching and mentoring programmes, and support in building entrepreneurial networks. Such programmes are often tailored to the specific barriers faced by women and delivered to women-only groups of beneficiaries.

3. Increase the use of loan guarantees. Most government policies to improve access to finance for women entrepreneurs focus on interventions that provide grants, loans, and microcredit. A growing trend is to improve access to bank financing through loan guarantees. Evaluations of women-specific loan guarantees in Canada suggest that they create more jobs than mainstream programmes, while programmes in European Union countries also tend to show positive impacts.

4. Help women realise the growth potential of their businesses. There is a growing emphasis in entrepreneurship policy to help women acquire and develop the skills needed to successfully launch and run businesses with high growth potential. One approach is to deliver tailored support through women-only business incubator and accelerator programmes. Such incubators typically offer the usual business incubator support – premises, networking opportunities, training and workshops, etc. – but tailor them to the needs of women entrepreneurs and facilitate support. Experience in the United States suggests that dedicated incubators can be more effective than mainstream incubators which rely on male-centric networks, fail to reach out to women’s networks, select entrepreneurs through male-dominated selection panels, offer gender-insensitive programmes that do not address the needs of women.

5. Improve access to risk capital for women entrepreneurs. Both venture capital and angel investment markets are male-dominated and investments tend to be concentrated in male-dominated sectors like STEM-related sectors. Experiments in the United States show that investors are 60% more likely to invest in male entrepreneurs, even when the content of investment pitches is the same, which suggests that women entrepreneurs pitching to investors can expect a lower chance of success because of their gender. Options for gender rebalancing include attracting more women investors and advisors as part of traditional venture capital and angel networks, and forming women’s venture capital funds led by women and specifically directed at investment in women-owned enterprises. Support may be forthcoming from public policies that encourage the formation of women-focused venture capital investments – by, for example, offering matching funds for investment in women-owned or women-led start-ups, early-stage and expansion-stage ventures.