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Stronger work-family policies help women entrepreneurs build better businesses

Women who live in countries with more generous childcare policies are more likely to start growth-oriented businesses. Reuters

Stronger work-family policies help women entrepreneurs build better businesses

Today, November 19, marks Women’s Entrepreneurship Day, an opportunity to celebrate and raise awareness about women entrepreneurs around the world.

Entrepreneurship is arguably crucial for job creation and economic growth. Yet persistently high levels of gender inequality in this segment of the workforce suggest that women remain a severely undertapped resource when it comes to growing a vibrant economy. And that is one key feature of persistent gender inequality we see across the workforce more broadly.

Although more women have launched businesses in recent years, their companies typically employ fewer workers and are less lucrative and growth-oriented. For instance, in 2014, woman-owned businesses in the US employed only 6% of the workforce and created less than 4% of all revenues – figures that are about the same as they were in 1997. And that’s despite being primary owners of more than one-third of all private companies.

That led me to pose the question: are there certain policies that can promote women’s engagement in high-growth forms of entrepreneurship, not just business creation in general? Understanding the sociological reasons behind persistent gender inequities like these is central to my research.

In a recent analysis, I show some surprising new evidence that work-family policies may be of critical importance. I found that when women have access to policies like paid leave or subsidized childcare, their odds of starting a venture oriented toward economic growth and job creation are higher. When they don’t, their odds are lower.

Childcare, family leave and women entrepreneurs

Scholars and policymakers already agree that government spending on childcare and family leave facilitates women’s employment.

For instance, a higher fraction of women are employed in countries with generous work-family policies like Sweden and Denmark than in countries like the US. This isn’t surprising: when workers have access to the time and resources needed to combine employment with caregiving, few women find it necessary to cut back their hours, change careers or “opt out” of the workforce when they have family obligations.

In contrast, there are fewer desirable employment options for workers with family responsibilities in places like the US that lack supportive work-family policies. In these contexts, conflicting work and family demands more often prompt women workers to search for more flexible options.

Interestingly, self-employment is often one such option, given that it affords the luxury of control over schedules, hours and the physical location of work. So women who lack access to supportive work-family policies may actually be more likely to start a business simply because they lack attractive options in traditional wage and salaried employment.

But there’s a downside to that. When a person is motivated by a lack of attractive options, it’s harder for them to create particularly large businesses or to develop and introduce a brand new product or service to the market.

Entrepreneurship as fallback

To evaluate the relationship between work-family policies and entrepreneurial activity among women, I analyzed Global Entrepreneurship Monitor (GEM) survey data from 24 countries between 2001 to 2008. GEM collects data and publishes research on entrepreneurship in more than 100 countries.

My analysis appears in the current issue of Administrative Science Quarterly and is summarized in a policy brief for the Council on Contemporary Families.

The research relies on a series of multilevel statistical models that estimate how gender gaps in entrepreneurial outcomes and motivations vary according to the relative availability of paid leave, subsidized childcare and part-time employment opportunities.

Each model adjusts for several individual and country-level factors that are known to correlate with gender differences in entrepreneurship outcomes, such as age, education, GDP and unemployment rates.

My analysis shows that the gender gap in the probability of starting and owning a business is lower in countries where public provision for childcare is meager or nonexistent compared with those that are more generous.

For instance, in a context with no state childcare spending, such as the US or Canada, a woman’s probability of being engaged in entrepreneurial activity is about two-thirds that of a man. By contrast, in a context where the state spends generously on childcare, such as Denmark or Finland, it’s only about half that of a man.

Further, I find evidence that this pattern likely arises because work-family policies are linked to women’s, but not men’s, entrepreneurial motivations. Specifically, women business owners are less likely to report pursuing entrepreneurship because they lacked a more desirable employment option in countries with generous subsidized childcare and/or ample part-time job opportunities.

This finding suggests that, in the absence of supportive work-family policies, women entrepreneurs are more likely to pursue entrepreneurship as a fallback, rather than a first-choice employment strategy.

Supportive policies are linked to more vibrant startups

But this dynamic leads to a particularly interesting outcome: the women who do run businesses in supportive contexts are more likely to be engaged in growth-oriented forms of entrepreneurship.

For example, I found that women business owners employ more workers, express more ambitious growth intentions and are more likely to report introducing a brand new product or service to the market in countries where government policies mandate between 20 and 30 weeks of full-time equivalent paid maternity and/or parental leave. Further, when government spending on childcare is relatively high (eg, more than 0.5% of GDP), women business owners are somewhat more likely to sell products or services that require the use of new technology.

Why? When individuals pursue entrepreneurship out of a necessity – like the need for better work-family balance – they tend to start smaller, less lucrative and less aggressively growth-oriented businesses. But such a necessity doesn’t arise as often when supportive policies give the average woman a broader menu of attractive opportunities in standard employment.

So the women who do pursue entrepreneurship in contexts with supportive work-family policies end up being a more select group motivated by a desire to build larger, more innovative organizations that will have a more substantial impact on the economy and job growth.

Work-family policies offer a choice

What all this means is that work-family policies facilitate entrepreneurship as a choice between two decent options: a secure job or the realization of a market opportunity, as opposed to a choice that is driven by necessity.

In doing so, they minimize the number of women who are vulnerable to the financial instability that is often part and parcel to small, low-growth forms of self-employment.

For instance, in the US, women-owned businesses have been struggling to survive more in recent years than in the past, a trend that fuels women’s lower incomes. Yet growth-oriented women entrepreneurs have been found to be among the happiest workers in our economy.

These findings underscore the idea that women’s disadvantages in entrepreneurship are rooted, at least in part, in the inflexible employer expectations that often disadvantage them in standard wage and salary jobs.

Policies like subsidized childcare and paid leave, which mitigate work-family conflict, promote women’s engagement in more innovative and job-generating forms of entrepreneurship – the kind that are arguably so critical to economic growth.