EntErprisE survEys 65117 EntErprisE notE sEriEs GEndEr Gender and Informality in Latin America 2011 R ecently collected data on informal or unregistered firms in Argentina and Peru show significant differences between male- and female-owned firms. Compared with male-owned firms, female-owned firms are smaller in size, have lower labor productivity and are less likely to use equipment such as machinery and vehicles. Some of the commonly held perceptions, such as lower education among women entrepreneurs, fewer numbers of owners among firms that have a female as the largest shareholder and greater difficulty faced by women in accessing credit, are only weakly supported in the data. However, as documented in the literature, women managers have fewer years of experience in running a business and they are also more likely to operate from inside than outside the household premises in order to take advantage of better working hours and location. Some gender-based differences in the willingness to register and the potential costs of EntErprisE notE no. 26 registering are also observed in the data. A substantial proportion of economic activity occurs Enterprise Analysis Unit in 2010 and cover 384 firms in within the informal or unregistered economy. This is Argentina and 480 firms in Peru.1 Firms were randomly especially true of developing countries. For example, a selected from two cities in Argentina (Buenos Aires and recent study estimates that globally between 22.5 percent Rosario) and two cities in Peru (Lima and Arequipa). It and 34.5 percent of all economic activity occurs in the is important to note that due to lack of proper sampling informal economy; for countries in the lowest quartile frames, these surveys are not necessarily representative of of GDP per capita, however, the estimates range from the informal economy at the country or even the city level. 29 percent to 57 percent (La Porta and Shleifer (2008)). Hence, the results presented below pertain to the structure Despite the large size of the informal economy, not much of the informal firms surveyed rather than the informal is known about it, in large part due to lack of reliable economy per se. Extension of these results to the broader data. Similarly, most of the literature devoted to gender- informal economy requires due caution. based differences in firm characteristics and performance Throughout this note, a female-owned firm is defined as focuses on formal or registered firms. See for example, one that has a female as the largest shareholder. The rest Sabarwal and Terrell (2008), Brush et al. (2006) and Carter are male-owned firms. For about 99 percent of the firms and Shaw (2006). in the sample, the largest owner is also the main decision Anecdotal evidence suggests that compared with men, maker (manager). Hence, there is almost no difference in women are more heavily concentrated in the informal the sample between female-owned and female-run firms, than the formal (registered) economy. This could be due and the same holds for male-owned and male-run firms. World Bank Group to lower entry and exit barriers in the informal economy, About 54.1 percent of the firms in the full sample are the fact that women face greater difficulty in obtaining female-owned, including 52.2 percent of those surveyed credit, the flexibility of working hours and the opportunity in Argentina and 55.6 percent in Peru. By sector, female- of working from home. These factors make the informal owned firms represent 48.2 percent of manufacturing economy particularly suitable for studies that aim to firms and 60 percent of service firms. highlight differences in female-run or female-owned businesses compared with their male counterparts. Labor productivity and firm-size is lower for This note uses recently collected data on informal or female-owned businesses unregistered firms in Argentina and Peru to highlight On average, output per worker (monthly sales in a important differences between male- and female-owned regular month divided by total number of workers) equals businesses. These data were collected by the World Bank’s U.S. $411 in the full sample—U.S. $358 for female-owned businesses and $473 for male-owned businesses. This is entirely driven by the firms in Argentina. In Peru, use implies that a typical worker in a female-owned business of cell phones is marginally higher among female-owned produces only 76 percent of the output of a worker in firms (52.4 percent vs. 51.6 percent). a male-owned business.2 The data also show that firm- size as measured by monthly sales in a regular month is Female-owned businesses are less inclined to smaller for female-owned than male-owned firms. That register than male-owned business is, the median-sized female-owned business is about 61 In the full sample, 51.8 percent of male-owned firms percent of a median-sized male-owned business. These compared with a significantly lower 40.8 percent of female- gender-based differences are robust and hold within owned firms wanted to get their business registered. various subsamples such as manufacturing and service However, this gender-based difference is largely driven by firms and relatively young and old firms.3 firms in the manufacturing sector where 55.4 percent of male-owned versus 41.7 percent of female-owned firms Female-owned businesses are less likely wanted to register. In the service sector a much smaller to use machinery and vehicles than male- and statistically insignificant difference (47.3 percent and owned businesses 40 percent, respectively) was reported. The survey provides information on three types of The survey reports on firms’ perceptions of the equipment: machinery, vehicles and cell phones. With potential benefits from registering—such as better the exception of cell phones, male- access to finance, better access to owned businesses are more likely to markets and government facilities, use equipment than female-owned The data show that less bribes to pay and being able firms. Figure 1 shows gender based to issue receipts—as well as the difference in the use of machinery. firm-size as measured perceived disadvantages—such The percentage of firms that use by monthly sales in a as the time, fees and paper work it their own vehicles or other means takes to register, taxes and bribes of transport for business activity regular month is smaller that registered businesses have to is also significantly higher among for female-owned than pay and inspections and meetings male-owned than female-owned with government officials that follow businesses (15.7 percent vs. 6.5 male-owned firms. registration. The proportion of firms percent). This difference remains that report the various benefits and large and significant within various costs as important does not vary subsamples including those shown in figure 1. In the case much between female- and male-owned firms, either in the of cell phones, 51 percent of male-owned firms in the full sample or within the subsamples of manufacturing and full sample compared with a much lower 42.7 percent of service firms. Hence, it is difficult to conclude why a larger female-owned firms use them. However, this difference proportion of female-owned compared with male-owned businesses in the manufacturing sector wanted to register. Figure 1 Male-owned businesses are Female owners are more likely than male more likely to use machinery owners to operate from home, in part due than female-owned businesses to the convenience of working hours and 80 location Percent of rms using machinery 70 As mentioned above, one might expect that compared 60 50 with male-owned firms, female-owned firms are more 40 likely operate from inside than outside household 30 premises. Further, for the set of firms that do operate 20 from inside the household premises, the percentage that 10 0 do so in order to have more convenient working hours or location is likely to be higher for female-owned than male- Single-employee Multiple employees Full sample Argentina Peru Manufacturing Service owned firms. The data confirm both these assumptions with the ■ Female-owned ■ Male-owned exception that in Peru, the percentage of male- and female- owned firms that operate from inside the household Source: Enterprise Surveys. premises is roughly equal. Briefly, in Argentina, 63 percent 2 of female-owned firms but only 39 percent of male- differences in how imperative it is for them to work. owned firms operate from inside household premises. In For example, in most counties, women are the primary contrast, in Peru these figures are 21.7 percent and 24.4 caregivers in the family and this could affect how the percent, respectively. Looking at the percentage of firms relatively less educated (less than secondary education) that choose to operate from inside household premises women compared with the less educated men choose because doing so offers better hours or location, however, self-employment versus wage work. Results show that the number is much higher for female-owned than male- accounting for differences across gender in the following owned firms in both Argentina (24.7 percent vs. 15.3 variables makes no difference to the weak relationship percent) and Peru (34.5 percent vs. 22.5 percent). between the gender of the owner and education level in the full sample: location of business inside versus outside Convenient hours and location are more of household premises (a measure of how serious the important reasons for switching business owner is about doing business), age of the owner, firm- activity for female than male entrepreneurs size measured by sales in a regular month, number of Switching from one line of business activity to another can hours of operation in a given week, sector of activity involve substantial loss of expertise and networks, lowering (manufacturing or service) and the marital status of the managerial efficiency. There is not much discussion in the owner (single vs. married). literature on informality on the extent of switching, if any, Women managers have less experience than and the reasons for it. Prior to starting their current business, about 81 percent of the business owners in the sample were male managers but other commonly held employed. Of these, about 55 percent were employed in gender-based differences are not supported an activity that was different from their current business by the data activity. That is, 55 percent of the owners switched business Some studies find that relative to male-owned businesses, activity when they started their current business. The figure female-owned businesses have fewer numbers of owners is significantly higher among female-owned firms than and are likely to hire more female than male workers, male-owned firms (58.5 percent vs. 51.1 percent), although and that female managers are less experienced than male the gap is almost entirely due to firms in the service sector. managers. Furthermore, they often find that women face The survey also provides information on the reasons for greater difficulty than men in getting credit. switching. One of the reasons for switching—better hours The data confirm significant differences along gender or better location—shows significant variation along lines only in the number of years of experience that the gender lines. That is, 30.2 percent of female entrepreneurs manager has—not in the remaining variables listed. On who switched reported doing so for better hours or better average, a female manager of a firm has 10.3 years of location while males reported a much lower 18.5 percent. experience in the sector compared with a much higher This difference holds equally within the samples of service 14.1 years for male managers. This difference remains and manufacturing firms. Female owners of informal businesses are Figure 2 Managers of female-owned less educated than their male counterparts, businesses have less experience in but only in Peru running a business One of the key findings in the literature is that relative to 18 men, women tend to have lower education levels and this 16 Years of managerial experience holds for firm-owners, managers and workers (Carter and 14 12 Shaw (2006)). The data under study show that the level 10 of education (no education, primary education, secondary 8 6 education, vocational training and university education) 4 is lower for an average female owner than a male owner, 2 but this holds only in Peru—not in Argentina. There is 0 Single-employee Multiple employees Full sample Argentina Peru Manufacturing Service some suggestion in the literature that the education level of the parents has a stronger effect on the education level of daughters than sons. The data under study show no evidence of this. One might speculate that the difference ■ Female-owned ■ Male-owned in education level between male and female owners of businesses may be larger if one could account for gender Source: Enterprise Surveys. 3 Figure 3 Some perceived costs of registering vary by gender, but only in Argentina Argentina Time, fees and paperwork There is no bene t from registering Bribes that registered businesses need to pay Inspections/meetings with government o cials faced by registered rms Taxes that registered rms pay Peru Time, fees and paperwork There is no bene t from registering Bribes that registered businesses need to pay Inspections/meetings with government o cials faced by registered rms Taxes that registered rms pay 0 10 20 30 40 50 60 70 80 Percent of rms reporting the cost as an important reason for not registering ■ Female-owned ■ Male-owned Source: Enterprise Surveys. after various checks for differences in firm characteristics example, the percentage of firms in Peru that use family such as sector of activity, age of the manager, firm- labor equals 21.7 percent among female-owned firms and size and age of the firm. The difference also holds a much higher 30 percent among male-owned firms. In individually within various subsamples (figure 2). contrast, in Argentina the corresponding figures hardly The percentage of firms that use external sources to differ from one another, equaling 31.6 percent and 32 finance their day-to-day operations is 24.6 percent for percent, respectively. male-owned firms and a roughly similar 22 percent for The survey asked firms about the main reason why female-owned firms. Male- and female-owned firms are they are not registered. Five different types of costs were also roughly similar in the percentage listed and the firms were asked if that have a bank account (6.6 percent these were important in their case and 4.1 percent, respectively), report On average, a female or not. For three of these five costs access to finance as a severe obstacle (top three costs in figure 3), the to doing business (32.2 percent manager of a firm has percentage of male-owned firms in vs. 31.9 percent) and that report 10.3 years of experience Argentina reporting them as relevant internal funds as the most common was much higher than for female- source for financing their day-to- in the business owned firms. In contrast, no such day operations (71.5 percent vs. 74.5 compared with a much difference was observed among percent). Similarly, male- and female- Peruvian firms for these costs. For owned businesses are similar in the higher 14.1 years for the remaining two costs, there is no number of owners of the business male managers. gender-based difference in either (on average, 1.1 owners for both) country. and a roughly similar percentage of workers that are female (47.7 percent vs. 49.9 percent). Informal firms in Argentina and Peru show significant gender differences in, for example, labor productivity, total Some gender-based differences are specific monthly sales, location of the business inside or outside to the individual countries the household premises, years of managerial experience The level of economic development of a country and and the desirability of getting the business registered. other factors such as the level of regulation and quality However, gender-based differences in firm-characteristics of the business environment that are specific to a country cannot be taken for granted since not all firm-characteristics can have significant impacts on the structure and conduct vary along the gender dimension. A detailed analysis on of informal firms. The data confirm that this is indeed the a country-by-country basis is required to ascertain the case with at least some of the firm-characteristics. For gender-specific differences among informal firms. 4 References Notes Brush, C., N. Carter, E.J. Gatewood, P. Greene and M. Hart. 1. The Enterprise and Informal Surveys implemented in Latin America 2006. Growth Oriented Women Entrepreneurs and Their Businesses and Caribbean countries, are jointly conducted by the World Bank (New Horizons in Entrepreneurship). Cheltenham, UK and and the Inter-American Development Bank for this geographic Northampton, MA: Edward Elgar. region. Carter, Sara and Eleanor Shaw. 2006. “Women’s Business Ownership: 2. The percentage figure drops somewhat to 72 percent if we exclude Recent Research and Policy Development.� Report to the Small four observations that show extremely high or low levels of labor Business Service, U.K. productivity. La Porta, Rafael and Andrei Shleifer. 2008. “The Unofficial Economy 3. More details on these differences are discussed in two separate and Economic Development,� Tuck School of Business Working companion notes. Paper No. 2009-57. Available at http://ssrn.com/abstract=1304760 Sabarwal, Shwetlana and Katherine Terrell. 2008. “Does Gender Matter for Firm Performance? Evidence from Eastern Europe and Central Asia.� IZA Discussion Paper Series No. 3758. 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. 5