Why Are Women Entrepreneurs Paying Themselves Less Than They Deserve?

In an age where many tout a closing of the gender gap in the workplace, we still see a significant salary gap among female entrepreneurs. Why?

Women have long fought for gender equality in the workplace, so one would imagine female entrepreneurs would naturally narrow the salary gap. Yet, a recent study by Babson College showed women are paid less, even when they write their own paycheck.

The study surveyed graduates of Goldman Sachs's Small Business Program and found the gender gap that exists in the workforce also exists amongst entrepreneurs. Women in the United States earn an average of 77 cents for every dollar paid to men.

US gender pay gap, by stateMap via Wikimedia Commons

Surprisingly, female entrepreneurs who graduated from the Goldman program gave themselves salaries equivalent to 80% of those of the male entrepreneurs who had graduated from the same program—close to the national average. More than half of the 1,500 entrepreneurs that have graduated from the Goldman program since 2010 are women.

The study's author, Patricia Greene, could not explain the disparity, but an article in the New York Times, says it warrants further study.

"I’m not sure if it’s benchmarking against salaried women, I’m not sure if it’s a lack of confidence, I’m not sure if it’s negotiating themselves down first," she says in the article.

Possible causes

The gap could be explained by the type of businesses women are more likely to operate. According to Ariane Hegewisch, a study director at the Institute for Women's Policy Research, who is also quoted in the Times article, women are more likely to start businesses in sectors with lower average revenue than men.

The study results may indicate a crisis of confidence in female entrepreneurs, proof that men place a higher value on their work than women.

But the leading hypothesis is that female entrepreneurs tend to put themselves last, preferring to put extra revenue back into the business, pay employees, or bring on new hires rather than pay themselves.

Six months after the initial survey, Greene followed up with the Goldman grads and found the female entrepreneurs had narrowed the salary gap from 20% to only 8%. While both the male and female entrepreneurs had given themselves raises during the six month period, the women's raises were on average larger than those of their male counterparts.

Hat tip: New York Times

[Image: Flickr user MrVJTod]