Does Gender Matter for Small Business Performance? Experimental Evidence from India
The gender profit gap in micro-enterprises is likely to be driven by gender differences in access to capital and business inputs rather than seller behavior or demand-side constraints.
In developing economies, where self-employment is more common than wage employment, research suggests that women’s business profits are less than half of men’s profits in many contexts. Women also have been found to have lower returns to capital compared to men. In India, micro-enterprises in the informal sector are the most common type of female-owned businesses, making up approximately 3 million businesses. However, further research is needed on the causes of the gender profit gap in business performance.
Previous studies of gender dynamics in marketplaces suggest that female sellers may face a penalty from buyers, in that buyers may be less willing to purchase goods from female-run businesses. However, it is also important to explore how differential behaviors of buyers and sellers may affect male and female business owners’ revenue and profits. These effects should be studied separately from the effects of gendered business characteristics like the type, quality, and quantity of products sold on business profits. This study chose to do this using typically non-gendered products – vegetables and packaged snack products.
To investigate what drives this gender profit gap in business performance in micro-enterprises in India, the authors ran two field experiments. Both experiments controlled for all supply-side inputs (location, goods sold, hours worked). The first experiment additionally controlled for seller behavior to assess the impacts of demand-side characteristics like buyer preferences. The second only controlled for supply-side characteristics to assess the impacts of seller behavior on the gender profit gap.
Neither demand-side constraints nor seller behavior could completely explain the gender profit gap for micro-enterprise businesses. Gender discrimination from the buyer was not found to be a constraint for women selling goods of observable and identical quality.
- Baseline surveys found that women’s inventory in the marketplace was 40% lower in value than men’s inventory before the experiment.
- Both experiments found that women sellers earned least as much as men when all other business’ characteristics were made the same.
- In Experiment 1, men sold 23% fewer goods than women, making it clear that male sellers did not overperform female sellers in similar controlled settings.
- In Experiment 2, researchers found that sellers charged similar prices and used similar bargaining strategies, regardless of gender.
These findings together rule out gender discrimination from the buyer and differences in selling behaviors as reasons for the gender profit gap. Instead, the gender profit gap is likely driven by differences in access to capital and supply-side factors that affect business inputs – quantity and quality of goods sold, location, and hours worked. Providing male and female sellers with equal access to capital, resources, and business inputs may move the needle in closing the gender profit gap.
The authors collected baseline data in three phases. The first phase involved designing a survey and surveying a representative sample of 101 sellers to collect baseline data on the gender profit gap and performance of sellers in their own stalls. A pilot version of the experiment was run on an initial sample of 38 sellers. In the second phase, random buyers (52 female and 61 male) in five of the 13 markets identified for the study were surveyed about their purchasing habits and motivations. In the third phase, 1112 vegetable sellers across 13 markets in Jaipur were identified, out of which a representative sample of 237 sellers was surveyed to understand characteristics of vegetable sellers.
The first experiment was run with 14 male and 19 female college students and 6 male and 5 female surveyors as confederate sellers – who were randomly assigned (one man and one woman) to each of the two stalls for 122 selling days. To control for all supply-side characteristics, the research team set up two stalls in each market and supplied them with produce that was identical in type, quantity and quality. All shops opened and closed at the same time. In each market, one male and one female seller were recruited to sell the goods, and each seller was randomly assigned to one of the two stalls.
The sellers were trained to interact with customers with a standard script and sell packaged goods (biscuits, savory snacks and fruit cake) to them at fixed prices. The second experiment included 272 experienced sellers (136 female and 136 male) in the 13 markets identified. Sellers were then randomly selected to work at these vegetable stalls for an entire day – one man and one woman at each of the two stalls – and they were free to bargain, price vegetables, and interact with the buyers as they wanted. For both the experiments, sellers were randomly assigned to each shop for the duration of the experiment to record transaction-level data – including the number of inquirers about the price, gender of buyers, price quoted by sellers, attempts to bargain, what goods were sold at what price, and whether a sale was made. Revenue was measured by counting cash at the end of the experiment.