Entrepreneurship reduces the wage gap between women and men

A new study shows that entrepreneurship can be an important piece of the puzzle in the work to increase economic equality in Sweden. The results indicate that women who start their own businesses on average receive a greater income boost than men.

"This result is both hopeful and important. It shows how entrepreneurship can be a liberating force for women whose skills are not recognized in traditional systems," says Lucia Naldi, Professor of Business Administration at Jönköping International Business School, Jönköping University.

According to the study, women earn on average 24 percent less as employees than men. But when women start their own businesses, the difference decreases to 19 percent. The study also shows that women's incomes increase significantly more than men's when they become entrepreneurs—about 22 percent compared to men's eight percent, based on what they would have earned if they had remained in salaried employment. The researchers' calculations show that the income gap between women and men shrinks by almost 30 percent.

“Despite these positive effects, female entrepreneurs still earn less than their male counterparts – but entrepreneurship seems to level the playing field to a greater extent than traditional career paths,” says Lucia Naldi.

Biggest gains for women with high grades

The study shows that women with high grades are more likely than men to start a business – and that these women also gain the most in income when they do so.

However, women’s skills are still not rewarded to the same extent as men’s. For men, higher grades lead to approximately two percent higher pay – but for women, the same grades only result in approximately half a percent more pay in regular salaried work.

This effect is even stronger in male-dominated industries, where women often face more obstacles to advancing their careers. In such environments, entrepreneurship can give women better opportunities to fully utilize their skills.

One objection that the researchers investigated is whether the income boost is due to general mobility in the labour market. However, when the results are compared with women who change employers without starting a business, the pattern remains the same. It is therefore entrepreneurship itself, not just mobility, that explains the effect.

“It is fascinating to see how consistent the results are. This means that women who choose entrepreneurship are not only changing paths but also creating entirely new conditions for their own economic development,” says Lucia Naldi.

“Should make politicians, educational institutions, and the business community rethink their approach”

The study thus adds a new dimension to the discussion on gender equality in the labor market. Entrepreneurship appears not only as an economic engine, but also as a tool to compensate for structures that hold back women's income development in traditional forms of employment.

"In a society where potential is still not valued equally between genders, entrepreneurship proves to be an area where women get a higher return on their investment. This should make politicians, educational institutions, and the business community rethink their approach," says Lucia Naldi.

The article about the study is published in the Strategic Management Journal: https://sms.onlinelibrary.wiley.com/doi/10.1002/smj.70065