NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Thursday, February 19, 2015

Over the last 17 years, women-owned businesses have increased dramatically—a substantial 68% since 1977. In a world where women have long lived and worked in the shadows of men, entrepreneurship seems to be helping women narrow the gender gap in the workplace. Until you take a look at their paychecks.

The fact that women earn less money than men is well known. It’s a deeply seated reality around the world; on average, women are paid 71% of what men are paid for the same work. The rationale is well researched. Women tend to cluster in low-paid sectors; they prioritize family, often lack confidence, and fail to negotiate better salaries; they’re discriminated against, either deliberately or unconsciously. But these reasons don’t justify why women social entrepreneurs, empowered to set their own pay bar, choose to pay themselves less—27% to 29% less than male entrepreneurs, according to a new study that my colleagues and I conducted.

The global social sphere is a booming sector committed to solving big problems and eliminating inequalities. But women running their own social enterprises are engendering their own inequities. Interestingly, it doesn’t seem to be an issue in happiness. Women are happier being social entrepreneurs than men, and job satisfaction is obviously worth something. This provides the first evidence for the “contented female social entrepreneur” paradox, a theory put forth in my recent report, stemming from research conducted byLondon Business School, Aston University, and the University of Antwerp. Simply put, women are motivated differently than men, and consider salary independent of (and to be less important than) satisfaction and social impact.

Perhaps you can’t put a price on happiness, but there must be other factors at play here, too. This warrants further study, so I can only offer informed speculation about the pay differential. Women are likely more risk averse than men, keeping more money in the business until they’re certain it will work out. They also tend to run smaller ventures than men so their revenues—and thus, profits—are considerably less. Less money in sum equates to smaller salaries overall, including their own. This may be because women choose to tackle tough social ills, which make it harder to succeed and generate less financial return on investment.

In the literature on the pay gap and in the media more generally, this state of affairs typically leads to cries of injustice. But is there something bigger behind this pay paradox? Are women socialized to expect to earn less? This would imply that the gender pay gap is much more deeply rooted than many believed, and it may never be eliminated entirely. Entrepreneurship, in theory, should level the pay gap and offer equalizing elements of opportunity. But research is proving otherwise. Women entrepreneurs are signing their own paychecks, yet the pay gap endures.