March 2012

IZA DP No. 6435: What Explains the Gender Earnings Gap in Self-Employment? A Decomposition Analysis with German Data

published as 'Why is there a gender earnings gap in self-employment? A decomposition analysis with German data' in: IZA Journal of European Labor Studies, 2012, 1 (6), [Open Access]

Using a large data set for Germany, we show that both the raw and the unexplained gender earnings gap are higher in self-employment than in paid employment. Applying an Oaxaca-Blinder decomposition, more than a quarter of the difference in monthly self-employment earnings can be traced back to women working fewer hours than men. In contrast variables like family background, working time flexibility and career aspirations do not seem to contribute much to the gender earnings gap, suggesting that self-employed women do not earn less because they are seeking work-family balance rather than profits. Differences in human capital endowments account for another 13 percent of the gap but segregation does not contribute to the gender earnings gap in a robust way.