For women in the workforce, the gender wage gap is a very real problem. And according to research from FreshBooks, women employees aren’t the only ones contending with lower wages: Self-employed women also earn 28% less than their male counterparts, on average.
A disheartening 70% of women surveyed by FreshBooks said discrimination and the “glass ceiling” were big factors in their decision to pursue entrepreneurship. In addition, more than half of women overall (and 61% of women of color) believe they’ll never reach their full career potential working for someone else.
While women may start businesses to pursue their full career potential, many are not reaching their full financial potential. Case in point: Although self-employed men earn an average of $77,540 annually, self-employed women earn an average of just $56,184 annually.
We’ll look at some stats about the gender earnings gap, possible reasons for it, and some actions we can take to help close it.
What Causes the Gender Earnings Gap?
In 2017, according to an American Express report on the state of women-owned businesses, there were an estimated 11.6 million women-owned businesses, employing nearly 9 million people and generating $1.7 trillion in revenue. Clearly, women business owners are making a significant contribution to the U.S. economy.
But women don’t always get what they’re worth in return. Why? A lack of research in this area makes it hard to pin the blame on any one factor, or any definitive group of factors. However, based on existing research, a couple factors clearly contribute.
Leaving the conventional workforce for entrepreneurship doesn’t always eliminate the glass ceiling. Consider that, according to the FreshBooks study:
- 34% of women entrepreneurs have experienced gender discrimination while self-employed.
- 30% believe they aren’t taken as seriously as their male counterparts.
- 30% believe they have to work harder than their male counterparts.
- 20% say they have to charge less than their male counterparts to attract and keep customers.
While it’s tempting to look at gender stereotypes as a thing of the past, recent research indicates that harmful bias against women is still common. For example, research over the last several decades has shown that lenders and investors treat men and women differently when it comes to funding their business ventures—even when those men and women exhibit similar work qualities.
Unequal Wages and Salary History
Congress may have passed the Equal Pay Act in 1963, but there’s no magic wand we can wave to ensure that men and women are paid in a fair and equitable manner. While we’ve made progress toward wage parity between men and women since the ’60s, we still aren’t there yet.
It’s now illegal in several states to require job candidates to provide their salary history, but in many places, this practice is still common. If you’ve spent your career as an underpaid employee, your starting point of reference will be off-kilter. Since women with full-time, year-round jobs earn an average of 79.6 cents for every dollar earned by men in the same situation, having to provide salary history just serves to reinforce systemic inequality.
The Consequences of Earning Less
Of course, money isn’t everything—there are many intangible benefits to a life of freelancing or entrepreneurship.
Seven in 10 self-employed women in the FreshBooks survey are happier than when they were employees, and 96% don’t want to return to a traditional job. Eighty-four percent say entrepreneurship makes being a parent easier, 70% enjoy better work-life balance, 60% report that they’re healthier, and 52% say they are less stressed. These are all valuable quality-of-life benefits.
But no matter what intangible benefits you enjoy, even when running a business “only” part-time, you still deserve to be paid what you’re worth.
Aside from fairness and principle (and the effect on your bank account), earning less than your male peers for the same work can have significant effects on the long-term viability of your business.
Decades of systemic bias against women also seem to have had a cumulative effect on women’s willingness to even apply for financing. According to a recent small business credit survey, more women-owned companies reported “being discouraged—not applying for financing for fear of being turned down” than their male counterparts. While we can’t be sure that this is directly caused by women’s experience with or anticipation of gender bias, it’s reasonable to assume that bias is a factor.
And this discouragement translates to a wider gap in funding for men- and women-led companies. A lack of available business funding can mean a more difficult journey toward growth and success for women entrepreneurs.
What Can You Do About the Gender Earnings Gap?
Part of overcoming the gender earnings gap is overcoming the attitudes and behaviors we may have learned, simply by growing up as women. While things are changing for the #MeToo generation, many professional women still struggle with how to price our services and fight for higher pay.
Of course, closing the gender earnings gap isn’t something any one person can do alone. It will take much more than individual will to overcome systemic biases that have existed for decades. That said, there are some actions you can take.
Talking to male business owners in similar industries is one useful strategy to help overcome internal hurdles (like the little voice inside whispering, “It’s not polite to demand more!”). If you’re a woman wrestling with how to price your services or market your business, try discussing it with trusted male colleagues in your industry or niche. You might be surprised at the prices they charge.
When pricing your products or services, data is your friend. Fortunately, there’s more data out there than ever before about pricing, salaries, and earnings. Here are some starting points:
- Check industry associations: See if your industry associations have revenue or pricing benchmarks.
- Conduct salary research: Research average salaries in your industry via websites such as Glassdoor or CareerContessa that collect salary data. Since you’ve got to figure in your own self-employment taxes, health insurance, overhead, and so on, these employee salaries won’t directly correlate with your salary if you’re a business owner; however, they’ll provide a good starting point. They’ll also help you judge what you should expect to pay your own employees.
- Talk to your network: Discuss your prices with an accountant experienced in your industry. She or he will be familiar with average prices and can help you set your own rates.
Having hard data to draw on will boost your confidence in negotiations, help you convince your clients the price you’re asking is fair, and help you make sure you’re treating your own employees equitably.