Homophily or Homomisia: Owner Gender and Gender Wage Inequality in Small Businesses

Women’s disadvantages in labor market outcomes are often attributed to the preponderance of male dominated networks in the workplace. This suggests that the presence of more women in positions of power would ameliorate gender differences in wages by providing women with the connections they need to succeed. However, there is little work evaluating these ideas, and the work that does so is unable to match individual workers to those in positions of power over them. This study considers these questions using a survey of several thousand small businesses, and examines how gender differences vary among establishments with male and female owners. We find no systematic differences between men and women owners in terms of gender wage inequality among their employees. Penner and Toro-Tulla Owner Gender and Gender Wage Inequality 2 The fungibility of social capital and the economic consequences of relationships are of great interest both in and outside of the academy. The adage “It’s not just what you know, it’s who you know” has been explored by studies examining the roles of personal networks in getting and keeping jobs (Fernandez and Fernandez-Mateo 2006; Mouw 2003; Neckerman and Fernandez 2003; Petersen and Sapporta 2004), the roles of professional networks in getting promoted (Forret and Dougherty 2004; Allen et al. 2004), and the role of these networks in creating and maintaining inequality (Fernandez and Sosa 2005; Ostroff and Atwater 2003). This literature can be divided into two approaches. The first, and more common, looks at how individuals employ their social capital to achieve economic gains. These studies include, for example, Granovetter’s (1995) analysis of job searchers and Scandura’s (1992) analysis of mentoring and career outcomes. Similarly, while less concerned with actors’ intentionality, studies such as Petersen, Saporta, and Seidel (2000) and Younkin (2006) explore how differences in social networks impact the economic wellbeing of individuals and companies. The second, and less common approach to the economic impacts of relationships looks at how individuals employ social capital to benefit others economically, or even allow themselves to be deployed as social capital. This work is typified by the work of Cohen and Huffman (2006) and Smith (2006). Our study follows in this second vein of research by looking at how female ownership of small businesses impacts gender wage inequality among employees. This question is important not only because little is known about the impact of small business owners on gender inequality, but also because it ties into two broader questions. First, it addresses a growing empirical literature concerned with the effect of female managers and supervisors on gender inequality. Previous work suggests that because of homophily, having a manager who is the same gender is a form of Penner and Toro-Tulla Owner Gender and Gender Wage Inequality 3 social capital that produces economic advantages for employees (e.g. Hultin and Szulkin 1999). While there are reasons to think that female managers, supervisors, and owners reduce gender inequality, there is as yet little research confirming this. Second, in looking at owners we gain insight into if and when people in positions of power act benevolently towards their subordinates. We briefly address each of these literatures in turn. Female Managers and Gender Equality. As women have increasingly moved into positions of management over the last several decades, a growing literature has emerged around the consequences of this for gender inequality in wages. Female managers should impact gender differences in wages in two ways. First, as much of the gender difference in wages stems from occupational sorting (Petersen and Morgan 1995), simply the existence of more women in managerial occupations should mitigate the gender wage gap. Second, female managers are argued to be less likely to engage in gender discrimination, leading to greater gender equality for workers under them (Cotter et al. 1997). Neither of these points, however, is entirely straightforward. While the mere presence of women within managerial jobs should lower gender differences in wages, gender segregation in managerial jobs renders this assumption slightly problematic. Jacobs (1992), for example, shows that while the increase of managers over time has been accompanied by a decrease in the wage gap among managers, female managers still earn less and have less authority than their male counterparts. Furthermore, a voluminous literature on the “glass ceiling” is concerned with the fact that while women might be managers, they are underrepresented in the top level management positions (Morrison and Von Glinow 1990; Penner and Toro-Tulla Owner Gender and Gender Wage Inequality 4 Wright, Baxter and Birkelund 1995). Finally, even among top level executives, women earn considerably less than men (Bertrand and Hallock 2001). In spite of these caveats, given that managerial jobs on average do have higher pay than non-managerial jobs, the movement of women into these occupations should lower the gender wage gap. The effect of female managers on the level of gender inequality for workers under them has not received as much attention, and the evidence that does exist is somewhat mixed. Rothstein (1997) uses NLSY data to examine the effect of supervisor’s gender on wages for workers aged 17-25. She finds that working for a female supervisor lowers the current earnings of both male and female employees, but that this effect is larger for men. Interestingly, Rothstein also shows that having a female manager is also related to higher wage growth for both men and women, though more so for men than women. Ferber and Green (1991), by contrast, find that working under a female supervisor lowers women’s wages more than men’s. They suggest that this is because women’s work is devalued more when it is done for a woman supervisor. It is thus unclear whether working under a female supervisor ultimately reduces gender inequality. Other studies using ecological data suggest that female managers lower the gender wage gap. Cohen and Huffman (2006) use Census data on local labor markets to show that labor markets with a higher percentage of women managers in upper level managerial positions have lower levels of gender inequality among non-managers. Hultin and Szulkin (1999, 2003) use matched employer-employee data to show that gender gaps are wider in firms with more male managers. 1 It is interesting that many of the differences between male and female managers are attributed to the same relational and networking concerns that women in management are supposed to help address. Penner and Toro-Tulla Owner Gender and Gender Wage Inequality 5 While neither of these studies link individual employees to their mangers, both provide compelling evidence that having women in managerial positions mitigates gender wage inequality. Closely related to the literature on managers is the literature that looks at the effects of professional mentors. While the conventional wisdom states that male mentors help men get ahead, the results are considerably more convoluted. For example, while Kirchmeyer (1998) finds that among a sample of MBA’s mentoring positively affects men’s earnings but not women’s, Laband and Lentz (1995) find that for lawyers protégé status is more beneficial for women than for men, and Johnson and Scandua (1994) find that mentoring has little effect on the wages of either male or female CPA’s. Ragins and Cotton (1999) find that among engineers, journalists, and social workers the effects of mentoring vary according to the gender of the protégé and the mentor such that men with a history of male mentors have the highest earnings and women with a history of male mentors have the highest promotion rates, but the implications of these findings for gender inequality are unclear. Thus, although there is great interest in the effects of being mentored on career trajectories, most of the research focuses on cases with limited generalizability and thus provides little consensus on the general effect of these kinds of