Women-Owned Businesses Suffered During the Pandemic. Here’s Why.

Women-owned businesses around the world have been hit hard by the COVID-19 pandemic, closing at higher rates than businesses owned by men.

There are a variety of reasons why this happened: partly because women are concentrated in sectors that suffered a greater drop in demand during the pandemic, and also because existing gender gaps affected their ability to adapt. For example, women-owned businesses often had trouble accessing digital services needed to take their businesses online.

These factors may pile on top of a simpler and more jarring explanation of why more women-owned businesses regularly fare worse than men-owned ones: discrimination. It appears from our research that customers are less likely to buy from women-owned businesses simply because they are owned by women.

In a new paper on gender gaps in business profits in Indonesia, my coauthors and I looked at pre-pandemic data on a random sample of 4,828 men and women business owners (2,852 females and 1,976 males) from 401 mainly rural villages in five regencies (kabupaten) of East Java province, Indonesia. Women-owned businesses are an especially important part of Indonesia’s economy, where businesswomen account for over half of the country’s micro- and small- and medium-sized enterprises and the sector contributes 43 percent of gross national product.

Here’s what we found

In our random sample of Indonesian businesswomen and businessmen, there were some similarities, but mostly large differences. The similarities we observed included years of business experience and similar scores in a cognitive ability index (scored 0-4).

In terms of business outcomes, men have more than twice as much capital, savings, and income from their business ventures.

There were large differences in the types of business and business outcomes. Proportionately more women business owners operate “consumer facing” restaurants and retail shops (which have been hard hit by the pandemic), while proportionately more men business owners operate other (unspecified) types of businesses, as well as service and processing businesses. In terms of business outcomes, men have more than twice as much capital, savings, and income from their business ventures. Importantly, women save more than men, but their lower incomes result in lower savings.

Even when men and women are matched in terms of characteristics of the owner and the resources of the business, including size and type, these vast gaps in outcomes persist. In fact, 40 percent of gaps in total earned income favoring men remain unexplained after this matching. Absent discrimination, these gaps should disappear using this methodology. Digging deeper, we found that discrimination by customers and women’s greater and more inflexible time spent at work contribute to these unequal business outcomes.

How we did it

In our methodology, we assumed that business owners’ observed (measured) characteristics and resources interact with unobserved (unmeasured) individual, household, and community level characteristics (like ambition, traditional gender norms, and discrimination) to produce business outcomes. Any residual gender gaps that remain after adjusting for differences in business owners’ observed characteristics and resources are attributed to the unobserved factors.

Using a technique called propensity score matching, our study paired women and men on demographic features, education, cognitive ability and risk taking, business experience, business capital and household assets, among other factors, and found that 40 percent of gaps in total earned income favoring men business owners remained unexplained after women and men were well matched.

Further, while the study found that some gender differences shrunk or disappeared after matching businesspeople, such as a difference favoring men on good business practices, it also found that other differences grew even larger. Particularly, women business owners have 25 percent fewer customers overall, and this difference grows significantly (by 143 percent) after adjusting for the additional endowments of men business owners, suggesting that gender discrimination by customers is at play. In addition, matching does not erase the gender differences in how much time owners spend at their businesses, with women reporting working more hours at the business in a typical day on average (8.6 hours versus 7.6 hours per day reported by men). Matching does not significantly reduce these hours.

Here’s what we can do about it

As countries across the globe, including Indonesia, are attempting to use their COVID-19 recovery policy agendas to address long-standing gender inequalities, they can’t ignore gender discrimination affecting businesses owned by women.

First, countries must strengthen micro and small businesses and ensure that economic recovery programs address factors in the family and community that tilt business environments in favor of men. If they don’t do this, a vicious cycle will continue, in which women’s low earnings lead to a cycle of low savings, which leads to limited capital formation and risk-taking, and to even lower earnings.

Second, countries must try to break this vicious cycle by strengthening businesswomen’s access to business capital, bank accounts, and savings as part of COVID-19 relief and small business recovery programs.

Third, financial service providers, including banks, cooperatives, mobile money operators and fintechs (financial service providers who provide online technology), need to serve women clients and eliminate possible biases against women in service provision. This change requires the commitment of financial regulators and collaboration with private sector providers and gender champions in the financial sector. The government and the private sector should provide incentives to financial sector providers to target the women’s market, and good gender data to design financial and insurance products that help overcome the constraints women face in the financial and business environments and to monitor their usage.

And finally, countries must tailor recovery policies to specifically address businesswomen’s needs, including addressing their unpaid care burdens. To address gender gaps in businesses, governments must also expand access to reliable, affordable, and quality childcare and eldercare arrangements for the self-employed.

Click here to read the study and learn more about the factors that keep women business owners behind and what governments structuring economic recovery policies can do about it.