Women taking risks: closing the gender gap in entrepreneurship

EAG 2015OECD Statistics Directorate

Women entrepreneurship is increasingly recognised as a key source of employment creation and innovation, and for addressing inequalities. McKinsey for example have just published a study estimating that “$12 trillion could be added to global GDP by 2025 by advancing women’s equality.” Women entrepreneurs could be a major part of this, but the latest figures presented in the OECD’s Entrepreneurship at a Glance 2015 show that in OECD countries there are two and a half times more men than women that are self-employed with paid employees. On average, 2.2% of all employed women are entrepreneurs who employ paid personnel, while the average for men is 5.6%. There are gender differences also when looking at the sectors of entrepreneurial activity, with a higher concentration of women in the services sector, particularly trade and hotels, while only few have businesses in manufacturing and construction. However, these patterns seem to be changing for young women entrepreneurs. Evidence points to considerable diversity in many OECD countries, including high shares of young women owning businesses in the construction sector, suggesting that stereotype barriers may be eroding.

Encouraging findings are also observed in terms of earnings from self-employment. Although a gender gap continues to exist in all countries, it has nevertheless decreased significantly in many. This is particularly true for Belgium, Finland, Iceland, Luxembourg, and the Netherlands where the gap has closed by more than 10% in recent years (see figures 1 and 2).

Figure 1. Gender gap in self-employment earnings
Percentage

Click to see full size or on the link below for the original data

http://dx.doi.org/10.1787/888933231185

Figure 2. Changes in gender gap in self-employment earnings

Percentage points, 2010-11 average compared to 2006-07 average

Fig 2
Click to see full size or on the link below for the original data

http://dx.doi.org/10.1787/888933231194

This could be an important driver for inspiring entrepreneurial motivation among women. Indeed, the fear of low or erratic earnings is one of the main reasons why many people do not become entrepreneurs. While entrepreneurship is a pathway to wealth for highly successful individuals, many people that are self-employed struggle instead with relatively low incomes, a condition that results in lower opportunities to accumulate savings and a higher likelihood of falling into poverty if the business fails.

Inevitably, there are risks when choosing to set-up a new business. But some of these risks, like achieving a gratifying remuneration or attaining a satisfactory work-life balance are often more inhibiting for women than for men. In fact, independently of a country’s economic context and cultural attitude toward entrepreneurship, women always appear less prone to take the risk of creating their own business than men (see figure 3). The share of men who would rather take a risk and build their own business than work for someone else is larger in virtually all countries, from high income OECD countries to least developed low income economies. There are a few exceptions where woman are more willing to take the risk, including Mexico and South Africa.

Figure 3. Willingness to take the entrepreneurial risk

2013, Percentage

Fig 3
Click to see full size or on the link below for the original data

http://dx.doi.org/10.1787/888933230517

Why are women less willing to engage in entrepreneurship? Perhaps because the share of women declaring that they have access to money or training to start-up and grow a business is always inferior to the corresponding share of men. As expected, the average share of women having access to money or training is the highest in OECD countries and lowest in low income countries. However, the main fact remains that across all countries in the world there is an important gender gap in accessing funds and training which are key ingredients for becoming an entrepreneur.

Evaluating the policies that support women entrepreneurs is complicated by the difficulty of measuring gender differences in entrepreneurship. The evidence presented Entrepreneurship at a Glance 2015 clearly shows that policy initiatives are needed to improve access to finance and training for setting up a business. Such initiatives would have a beneficial impact on women’s willingness to become entrepreneurs.

Useful links

Entrepreneurship at a Glance 2015

Gender Data Portal

What is a taxi? Regulation and the sharing economy

sharing economyToday’s post is from Darcy Allen, Research Fellow at Melbourne-based free market think tank The Institute of Public Affairs, and recent author of a new report – “The sharing economy: how over-regulation could destroy an economic revolution”.

The ‘sharing economy’ has emerged because new technologies such as the internet have drastically reduced transaction costs.

Embracing these developments, budding young entrepreneurs have launched businesses that help individuals exchange resources.

Examples such as the ride-sharing Uber and the accommodation-sharing Airbnb are making exchange more efficient by helping to coordinate information about mutually beneficial transactions. These businesses make money by taking a fee for facilitating the trade.

Why has the sharing economy emerged? The underlying reason is transaction costs – the costs of coordinating an exchange. This includes the discovery, bargaining, and policing costs of exchange.

As these costs fall it becomes more feasible for consumers and producers to transact. Transaction costs have now fallen so low that buyers and sellers can exchange the excess capacity of their existing resources with ease and convenience. Hence the emergence of the ‘sharing economy’.

The phenomenon is not limited to cars and houses, there are also sharing economy models for finance (Zopa), investment (Kickstarter), everyday tasks (Airtasker), and household tools (Open Shed).

These companies do not sell the ‘resources’ mentioned above. Rather, they sell the software, the matching algorithms, and the reputation of their business. This package provides a service where private parties can discover, bargain and police their own transactions.

Private parties are fast flocking towards these new platforms because of their advantages over traditional exchange: more sustainable use of scare resources by utilising idle capacity; often lower costs for consumers because of decentralised transactions; the ability to customise the details of the exchange; and flexible employment opportunities particularly for the unemployed.

But the future of these benefits is all but smooth sailing. The debate involves regulators, governments and incumbent industries. This is expected with any disruptive innovation. Incumbent industries scramble to protect their valuable position using the political process.

The underlying question of these debates is not really over whether the sharing economy has economic benefits. The question is over who is more effective at regulating emerging markets – governments or civil society?

A recent report by the Melbourne-based free market think tank the Institute of Public Affairs, The sharing economy: how over-regulation could destroy an economic revolution, explores how misguided and heavy top-down regulations could crowd out the benefits of the sharing economy.

Much of the problem stems from a misunderstanding of the costs of government intervention on one hand, and the increasing ability for markets, businesses and consumers to self-regulate on the other.

To be sure, these debates over government imposed control and evolving self-regulation will continue. But it is not sufficient to approach each issue on a case-by-case basis; decisions must sit within a broader regulatory design framework that provides the flexibility and adaptability to future challenges.

This post provides three such design principles.

Regulation should not be by default; it should be the second alternative if bottom-up governance fails.

Regulators must avoid hasty regulation. Imposing rules on an emerging industry naively assumes that regulators understand the future of that industry. Rather, the reaction of regulators should be to encourage and enable the development of bottom-up, organic, self-regulating institutions.

Some may recognise this as Adam Thierer’s idea of Permissionless Innovation. Governments too often follow a ‘precautionary principle’ – that is, regulating against the possibility of hypothetical harm. This locks entrepreneurs into rigid rules that stifle innovative activity.

The sharing economy has a large potential for self-governance. This is an alternative to government control. It is common for sharing economy platforms to have reputation mechanisms and insurance systems that fill some of the void where government regulation is assumed to sit.

These solutions are often cheaper, quicker and more flexible than their government alternative, and over-regulation can destroy these complex structures. It is the nature of politics that regulation is rarely able to evolve as technologies and industries evolve.

Moving away from occupational licensing as a signal of quality.

Occupational licensing is government deciding who can supply what services in the market. Licensing is often justified on the basis that it signals quality and safety for consumers.

This is all well and good, but occupational licensing also has costs. It is widely recognised that government-imposed licenses create supernormal profits for insiders, and are highly inflexible to changes in industry structure.

The sharing economy has created significant tension around occupational licensing. This is because private parties can now easily provide services – like transport and accommodation – through unconventional and decentralised markets.

The solution is to encourage alternative approaches such as professional certification to signify quality. Certification does not legally prevent individuals from providing certain services; it allows the market to decide. The benefit is that private parties determine whether the benefits of the certification outweigh the additional costs of providing the good.

We must encourage the sharing economy to create, test and refine their own certification bodies. For example, AirtaskerPRO is an additional screening process including an ID check and an in-person interview to obtain a badge on the user profile. These need to be embraced.

Make regulation technology-neutral to avoid entrenching industry structure.

Technology-specific regulation only survives the test of time when there is little innovation. Yet traditional industry structures are continually being displaced. Creative destruction is a good thing.

However, when governments regulate an industry, these regulations by their nature define and determine the structure of the industry.

Many sharing economy regulatory contests come down to questions such as ‘what is a taxi?’ or ‘what is a bank?’ As industries shift and innovate, these definitions blur. But regulatory frameworks tend to be fixed, based on the assumptions built into the industry structure that they were original designed to govern.

If governments want to encourage the sharing economy, they need provide a reliable, predictable, technologically-neutral legal system that both keeps industry-specific regulation to a minimum and favours private solutions to regulatory problems over public ones.

Useful links

The sharing economy at OECD Forum 2014

Steve, Clarence, Thomas and Topsy

There must be a more innovative way of topping Topsy

We all agree that Steve Jobs was a marketing genius, persuading the gullible to pay extravagant prices for bright, shiny things because they’re bright and shiny. But unlike Thomas Edison, the man Jobs is often compared to, he never electrocuted an elephant. In 1903 Edison fried Topsy from Coney Island’s Luna Park and captured the event on film.

Why? Topsy had killed three men, including her abusive trainer, and was going to be executed anyway, but Edison saw a chance to score points against his rival George Westinghouse. Edison’s company was producing electricity in over a hundred power stations by the end of the 19th century, but his DC system could only supply customers within a couple of kilometres from the plant. Westinghouse’s AC system, based on Nikola Tesla’s ideas, was capable of transmitting current over hundreds of kilometres. Edison started a “war of currents” to prove that AC was too dangerous to be allowed into homes, and killing Topsy using AC current was supposed to prove this.

Topsy died in vain of course, and elephanticide hasn’t been tried as a sales technique since, although Edison did develop the electric chair. Another Edison idea that proved successful was his Menlo Park laboratory, the first industrial research lab, working on everything from the phonograph to iron ore separators. Jobs’ genius is similar to Edison’s, if on a lesser scale,  in that both men recognised then potential of improving existing products and making them widely available.

Apple actually spends less of its revenue on R&D than Microsoft or Sony (4% versus 17% and 8% respectively) but it spends far more than Sony on each individual product: $78.5 million versus 11.5 million, while Microsoft spends a lot of its $9 billion research budget on general research that may not lead to a specific product.

Jobs understood that success depends on innovation, and that doesn’t mean just invention. Innovation can mean changing a product’s composition, for example removing the cocaine from Coca Cola, or the way it’s sold – in cans or bottles from machines as well as over the counter at drugstores.

Another great American entrepreneur who understood this too was Clarence Birdseye. He didn’t just invent an industrial method of copying the Inuits’ way of fast freezing fish, he also invented much of the machinery that made mass marketing of frozen products feasible. In a stroke of marketing genius, the Birdseye company supplied shops with the open-top freezer units to display and sell their products. This has since been copied by firms the world over.

Edison, Birdseye, Jobs and the like are obviously important assets for their company. But can you measure their value in the way you measure non-human capital? An OECD project on “intangible assets”, also called intellectual capital or knowledge capital, sets out to answer that question, in order to “provide structured evidence of the economic value of intangible assets as a new source of growth”.

If you’re wondering what Topsy was worth, take a look here.

Useful links

OECD work on innovation

The OECD Gender Initiative

8 March is the centenary of International Women’s Day. This year, we mark the occasion with a series of blog posts about initiatives to strengthen gender equality worldwide. In this post, Angelica Salvi del Pero of the OECD’s Directorate for Employment, Labour and Social Affairs describes the OECD Gender Initiative

It’s now official: the OECD has launched its Gender Initiative to strengthen gender equality in education, employment and entrerepreneurship, three crucial dimensions of economic opportunity.

There is no doubt that gender equality has still not been achieved. Not even in advanced economies. Despite the fact that girls on average do better than boys in school, women more often do not work, they are paid less and they progress less in their careers. Even though girls are just as good as boys in sciences, few of them choose to be trained and work as scientists. While many women start their own business, they tend to raise less funding and their businesses grow less. (more…)