The Gender Wage Gap and its Effect on Women’s Entrepreneurship

Abstract

The results of this paper demonstrate an inverse relationship between women’s status in terms of financial equality with men, proxied by gender wage gap, and women’s entrepreneurship participation at the US state level. The gender wage gap affects women’s opportunity cost of the entrepreneurship decision. In states where women’s status is lower (the gender wage gap is greater), women’s opportunity cost of becoming an entrepreneur is lower because their wages are lower, resulting in increased women’s entrepreneurship participation. Using an alternative proxy of women’s status that incorporates state-level socio-economic factors such as access to child care, our inferences are again robust and economically significant; this alternative measure supports the view that familial factors are also important in women’s opportunity cost of entrepreneurship, not just monetary factors. We also demonstrate that state’s demographics are important factors; specifically, youth, education, and diversity increase aggregate entrepreneurship in the state, but only education is specific to women. Collectively, we show that women choose to be more entrepreneurial when their status is lower, which reflects women’s economic resiliency.

Keywords: Entrepreneurship and women, women resiliency, gender wage gap, cost of business

JEL Classification: G10, G12