By Addisu Lashitew, Addis Birhanu, Yamlaksira Getachew
Unprecedented as the COVID-19 crisis has been, it is not so unusual in two important ways. First, the pandemic disproportionately affected minorities and small businesses and exacerbated existing income and wealth inequalities. Second, the scope and quality of public policy responses exhibited large differences across countries. The policies of the United States under President Donald Trump, who downplayed the health risks, stand in sharp contrast to China’s harsh containment measures, epitomizing the vast global divergence in public policy response to the pandemic.
Are these two major attributes of the pandemic related? The answer is a resounding yes. Our recently published paper explored the potential effect of public policy responses on gender-related differences in enterprise performance. Exploiting the large cross-country variation in public health and economic policy responses, we studied whether good public policies were associated with a narrower performance gap between male- and female-owned businesses.
The pandemic hurt women-owned businesses more
We started out by examining if women-owned enterprises underperformed male-owned ones at the height of the pandemic (March 2020-February 2021). Since the early days of the pandemic, mounting exploratory evidence has pointed to disproportionately severe labor market effects on female workers and entrepreneurs. Our study offers a systematic investigation of performance differences among businesses that accounted for pre-pandemic performance differences. The analysis is based on the World Bank’s COVID-19 Tracking Database, which provided monthly enterprise performance data, that we combined with the Enterprises Surveys database to gauge pre-pandemic performance. The combined datasets covered more than 20,000 mainly small and medium enterprises across 38 countries.
The results revealed that, other things constant, monthly sales growth during the pandemic was lower by 3 percentage points among women-owned enterprises. The effect was driven by longer business closures among women owned enterprises: 17 percent longer than the duration of closure of the average firm.
These results should not come as a surprise considering the unique tradeoffs the pandemic introduced between health and economic risk, a phenomenon dubbed the “life versus livelihoods conundrum.” Considering the differences between men and women entrepreneurs in their risk perception and work-life tradeoffs, it was perhaps inevitable that the pandemic affected women-owned enterprises more severely.
This is partially because containment measures such as stay-at-home orders and school/day-care closures have resulted in an increase in “unpaid” home production—with work, education, and child care activities being performed at home. A blurring of the boundary between family and work increased family responsibilities among women entrepreneurs, given the patterns of labor division that assign disproportionately more domestic responsibilities to women.
A second factor was that women entrepreneurs tended to attribute greater weight on health risks vis-à-vis the associated economic risks. Studies that relied on large-scale survey datasets from multiple countries have shown that women saw the pandemic as a greater health risk, although men experienced significantly greater morbidity and mortality from COVID-19. The combined effects of greater familial obligation and sensitivity toward health risks potentially explain the significant gender gap in performance observed in our analysis.
The quality of public policies matters more for female-headed firms
We then tested whether policies in the domain of public health and economic support helped reduce the gender gap in economic performance. Disaggregated monthly series data measuring the strength of public health policies and economic support policies were taken from the COVID-19 Government Response Tracker compiled by researchers at the University of Oxford. After accounting for pre-pandemic performance differences, we found that public health policies (such as information campaigns, contact tracing, and testing policies) significantly reduced the observed gender gap in performance.
Sound public health policies seem to help with the underlying problems that held back women entrepreneurs during the pandemic. For example, containment policies that enabled the reopening of schools and day care centers helped to restore the work-life balance of women entrepreneurs that had become skewed and increased their family obligations—more than they did for men. Moreover, these policies could reduce the gender gap in risk perception by providing reliable and timely public health information and extending access to essential health services.
Surprisingly, we found no evidence that the strength of economic support policies narrowed the gender gap in enterprise performance. This could very well be because of the poor precision of our measures given the difficulty of tracking the level of economic support provided to the private sector. However, considering that the results held under different alternative measures, they could imply that economic support was not as effective as public health policies in addressing the underlying problems of women entrepreneurs. An alternative explanation is that the distribution of economic support was not favorable to women and other disadvantaged social segments, a theme that has been explored by recent studies.
Gender still matters in business—and even more in bad times
Given the massive scope of the COVID-19 pandemic—and its potentially enduring repercussions—understanding the distributional implications is key for informing future policy and practice. Our results, which proved durable in a series of robustness tests, highlight both the disproportionate effects of the pandemic on women entrepreneurs and the role of public health policies to mitigate them. They also highlight the need to systematically investigate the gendered effects of COVID-19 and the attendant policy responses.
