EntErprisE survEys 60350 EntErprisE notE sEriEs GEndEr 2010 Gender and Informality Mohammad Amin F rom a sample of informal firms in Burkina Faso, Cameroon, Cape Verde, Côte d'Ivoire, Madagascar and Mauritius, this note compares male- and female-owned businesses. We test a number of hypotheses discussed in the literature and find the following results. First, the female-owned business under-performance hypothesis is confirmed, but only for firm-size. For firm efficiency, measured by the average productivity of labor, we find little difference across male- and female-owned businesses. Second, as documented in the literature, there is a greater proclivity among female relative to male entrepreneurs to work from home than outside the home. However, EntErprisE notE no. 16 working from home does not appear to be disadvantageous to female entrepreneurs; at least, no more than for male entrepreneurs. In fact, working from home protects female-owned businesses from crime more so than for male-owned businesses. Lastly, female entrepreneurs are less likely to have a bank account and use external financing sources than male-owned businesses. Reasons for not seeking loans appear to vary by the gender of the owner and are discussed. There is substantial evidence showing that male and choice of occupation and working from home vs. outside female workers have differing experiences in the labor the home. For example, using the 1980 U.S. Census of market. There is also a small but growing body of work Population data, Carr (1996) finds that having children, showing systematic differences in how male- vs. female- particularly young children, has a strong positive differential owned and run businesses are organized and how they impact on women's tendencies to be self-employed. The perform. However, most of this literature is focused on study concludes that more than men, women pursue the formal or the registered sector. Furthermore, only self-employment for the flexible working hours in order a few studies in this area focus on developing or low- to accommodate family-related obligations. Also, poorer income countries. For example, focusing on the firm- access to finance, in part due to discrimination, is reported size and gender (of the owner) relationship, Brush et al. in a number of studies for female-owned compared with (2006) find that in the United States, the average revenue male-owned businesses. of female-owned firms equaled US$151,130, which is This note looks at some of the themes mentioned above about 26 percent of the average revenue for male-owned for informal (unregistered) firms in six developing African World Bank Group businesses. Apart from firm-size, studies also show that countries including Burkina Faso, Cameroon, Cape Verde, female-owned businesses perform worse than male- Côte d'Ivoire, Madagascar and Mauritius. The data used owned businesses in terms of efficiency and growth. For consist of a random sample of informal firms collected example, Robb and Wolken (2002) report that in a sample by the World Bank's Enterprise Surveys in 2008-09.1 As of white-owned small businesses in the United States, is common with surveys of informal firms, our survey female-owned businesses generated only 78 percent of is also not representative of the informal sectors in the the profits generated by male-owned businesses. Bosma mentioned countries. Hence, the results below should et al. (2004) also find similar results for Dutch businesses. be treated as pertaining to the surveyed firms rather the Another popular theme in the literature concerns family informal sector per se. responsibility and how it affects women vs. men in their The survey sample consists of 759 firms. The surveyed her family members, if applicable, in a normal month) firms include a mix of manufacturing and service firms varies by the gender of the owner. Except in Côte d'Ivoire, and are roughly equally distributed across the six countries. female-owned businesses are smaller than male-owned Throughout this note, we define a firm as female-owned businesses in all the other sub- groups shown. A roughly if the owner with the largest share of similar picture emerges if we look at the firm is female and male-owned monthly sales instead of employment, otherwise. In our sample, about 39 Although smaller in although there are a few country- percent of the firms are female-owned. size, female-owned specific exceptions in this case. Without much loss of generality, These results are discussed in detail we use the terms female-owned businesses are as in Amin (2010a). In contrast, looking interchangeably with female-run or efficient in terms of at firm efficiency as measured by the female-managed since the individual average productivity of labor (sales to owning the single largest share of the labor productivity as employment ratio in a regular month firm is also the main decision maker or male-owned businesses. expressed as logarithmic values), we the manager in more than 94 percent find only weak evidence that female- of the firms. owned businesses perform worse than male-owned businesses (figure 2). Female-owned businesses are smaller in size, but they are as efficient as male-owned Female entrepreneurs are more likely businesses to operate from inside than outside the The female under-performance hypothesis has been the household premises focus of a number of studies (mentioned above). This As mentioned above, in most countries around the globe, hypothesis posits that female-owned businesses perform women are considered the primary caregivers in the family. worse than male-owned businesses in terms of size, The need to balance work and family life can force women to efficiency and growth. work from home as opposed to from outside the household We find mixed evidence for the stated hypothesis. Figure premises. Social and cultural factors may also contribute to 1 shows how firm-size measured by the total number of gender based differences in business location. For example, people working at the firm (including the owner and his/ in traditional societies, where men are perceived as primary Figure 1 Female-owned businesses Figure 2 Average productivity of labor does have fewer workers than not vary significantly between male-owned businesses male- and female-owned firms Employment and gender Labor productivity and gender Average productivity of labor (log values) 4.0 8 Number of people working at the rm in a normal month 3.5 7 3.0 6 2.5 5 2.0 4 1.5 3 1.0 2 0.5 1 0.0 0 Full sample Côte d'Ivoire Madagascar Mauritius Burkina Faso Cameroon Cape Verde Young rms Old rms Manufacturing activity Service activity Full sample Côte d'Ivoire Madagascar Mauritius Burkina Faso Cameroon Cape Verde Young rms Old rms Manufacturing activity Service activity Female-owned businesses Male-owned businesses Female-owned businesses Male-owned businesses Source: Enterprise Surveys. Source: Enterprise Surveys. Young firms are defined as those at or below the median Average productivity of labor is defined as total sales of a firm age (6 years); the rest are old firms. A firm is engaged in a in a regular month divided by the total number of workers at manufacturing activity if it produces its main product itself and the firm in a regular month (expressed as logarithmic values). in a service activity otherwise. 2 breadwinners of the family, a husband may feel threatened tangential to other (household) duties or disadvantageous or embarrassed if his wife also works in the market. Home- to doing business, and no more or less so for female- based work can be performed privately, and it may be than male-owned businesses. For example, female-owned less valued than market-based work, businesses located inside household reducing some of the embarrassment premises operated for 54.2 hours in and threat experienced by the husband The percentage of firms a week on average. This is roughly (Akerlof and Kranton 2000). similar to 53.3 hours of operation Do female entrepreneurs in our that use a bank account for a female-owned business located sample have a greater proclivity than for business purposes outside household premises. Similarly, male entrepreneurs to run businesses is much lower among the corresponding figures for male- from home compared to outside the owned businesses equal 55.6 and 60.8 household premises? Does working female- than male- hours, respectively. Roughly similar from home detract from doing owned businesses (32 results hold for labor productivity (see business, lowering firm efficiency Amin 2010b). and the number of hours a business percent vs. 43 percent). We mentioned that the preference normally operates? for home-based work among women is Figure 3 confirms that the largely explained by the need to balance percentage of female entrepreneurs working from home family life and work and sociocultural factors. This raises is much higher than the percentage of male entrepreneurs an interesting point: is there an economic rationale for the in the sample. The only exception is Côte d'Ivoire, and to location choice of businesses and does this rationale vary some extent, Madagascar, where the difference is small. systematically by the gender of the owner of the business? For more details, see Amin (2010b). One plausible rationale could be that working from home For possible detrimental effects to doing business from protects women from incidents of crime more so than men. working inside the home vs. outside the home, we looked at Our data do not reject this rationale (figure 4). Note that the a number of factors such as average productivity of labor, findings shown in figure 4 are not due to country, sector and number of hours a business normally operates, access to a host of firm-specific differences between firms. finance, and crime. However, we found no evidence that working from home implies that doing business is only Figure 3 Compared with males, females are Figure 4 Working from home insulates more likely to run businesses from female-owned businesses from inside the household premises the threat of crime more than Home-based businesses and gender male-owned businesses 70 Incidence of crime, business location and gender 60 Percentage of rms located inside household premises 14 50 12 Incidence of crime (% of rms) 40 10 30 8 20 6 10 4 0 Full sample Côte d'Ivoire Madagascar Mauritius Burkina Faso Cameroon Cape Verde Young rms Old rms Manufacturing activity Service Activity Full sample Côte d'Ivoire Madagascar Mauritius Burkina Faso Cameroon Cape Verde Young rms Old rms Manufacturing activity Service Activity 2 0 Full sample Female-owned Male-owned businesses businesses Female-owned businesses Male-owned businesses Inside the home Outside the home Source: Enterprise Surveys. Source: Enterprise Surveys. The incidence of crime equals the percentage of firms that experienced one or more incidents of crime during the survey year. Crime incidents include losses due to arson, theft, robbery or vandalism. 3 Female-owned businesses are less likely productivity. Consistent with the literature, we find that to use external sources of finance and have female entrepreneurs are more likely to operate from bank accounts inside the home than outside the home when compared with male entrepreneurs. However, home-based work Consistent with the broader findings in the literature, we does not appear to be disadvantageous to female-owned find systematic differences in the use of banks and external businesses. Lastly, we confirm the findings of earlier financing between male- and female-owned businesses. studies that, compared with male owners, female owners Compared with male-owned businesses, female-owned are less likely to have a bank account and less likely to businesses are much less likely to rely on external sources use external sources of financing. Some of the important to finance the day-to-day operations of the business (25 reasons for not seeking external credit are also found to be percent vs. 34 percent).2 Similarly, the percentage of firms gender-specific. that use a bank account for business purposes is much lower among female- than male-owned businesses (32 Notes percent vs. 43 percent). While the proportion of firms 1. The raw data and fieldwork implementation reports (containing the with a bank loan does not vary much by the gender of the sampling methodology) are available at www.enterprisesurveys.org. owner, the reasons cited for not applying for a loan in the 2. External sources of finance include credit from suppliers or advances year prior to the survey show substantial differences across from customers, moneylenders, microfinance institutions and banks. male- and female-owned businesses. About 44 percent of female-owned businesses and only 32 percent of male- References owned businesses reported "no need for a loan" as the Akerloff, G. and R. Kranton. 2000. "Economics and Identity," Quarterly main reason for not having a bank loan. For the sample of Journal of Economics 115 (3): 715­753. the remaining firms, about 27 percent of female-owned Amin, M. 2010a. "Gender and Firm-Size: Evidence from Africa," firms vs. 41 percent of male-owned firms reported the mimeograph. complex application procedures as the main reason for not Amin, M. 2010b. "Home-based Informal Businesses and the Gender Dimension," mimeograph. applying for a loan. In contrast, high interest rates or lack Bosma, N., M. van Praag, R. Thurik and Gerrit de Vit. 2004. "The of required guarantees was the main reason 44 percent of Value of Human and Social Capital Investments for the Business female-owned businesses reported not having a bank loan Performance of Startups," Small Business Economics 23: 227­236. vs. 33 percent of male-owned businesses. Brush, C., N. Carter, E. J. Gatewood, P. Greene and M. Hart. 2006. Growth Oriented Women Entrepreneurs and Their Businesses (New Horizons in Existing studies highlight a number of broad themes Entrepreneurship). Cheltenham, UK and Northampton, Mass.: in the context of male- vs. female-owned and managed Edward Elgar. businesses. However, most of these studies are restricted Carr, D. 1996. "Two Paths to Self-Employment? Women's and Men's to the formal (registered) sector. This note sheds light on Self-Employment in the United States, 1980," Work and Occupations 23: 26­53. some of the issues concerning informal (unregistered) Coleman, S. 2007. "The Role of Human and Financial Capital in the sector firms in six developing African countries. Our results Profitability and Growth of Women-Owned Small Firms," Journal confirm some of the findings in the broader literature, of Small Business Management 45 (3): 303­319. but reject others. The under-performance hypothesis for Robb A., and J. Wolken. 2002. "Firm, Owner and Financing female-owned as compared with male-owned businesses Characteristics: Differences Between Male and Female-Owned Small Businesses," Working Paper, Federal Reserve Board of Governors. is restricted to firm-size, and does not hold for labor The Enterprise Note Series presents short research reports to encourage the exchange of ideas on business environment issues. The notes present evidence on the relationship between government policies and the ability of businesses to create wealth. The notes carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this note are entirely those of the authors. They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent. 4