Webinar: Alison Preston, UWA - Understanding the Gender-gap in Self-employment: The Role of Financial Literacy

Melbourne Institute Seminar Series

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Title: Understanding the Gender-gap in Self-employment: The Role of Financial Literacy

Abstract: This paper examines the relationship between the gender gap in financial literacy and the gender gap in self-employment in Australia. In most countries, both gaps are sizable, with women, on average, having lower levels of financial literacy and lower rates of self-employment when compared to men. While there is some research aimed at linking financial literacy and self-employment, the authors are not aware of any published study linking the gender gap in financial literacy to the gender gap in self-employment. This paper, therefore, attempts to fill what appears to be a research void. Australia forms a particularly relevant case study since, in terms of international rankings, it ranks very highly in both financial literacy and self-employment, yet the gender gaps across both dimensions are large. A particular challenge in examining the relationship between financial literacy and self-employment is the potential for “two-causation”, since both causal directions are plausible. Potential endogeneity is addressed in this paper following two approaches. The first approach exploits variation in self-employment caused by an institutional reform designed to incentivise the outsourcing of labour through the use of “independent contractors”. The second approach is an Instrumental Variables (IV) analysis, which requires the use of variables (the so-called IVs) that have a strong predictive effect on financial literacy and little (preferably no) predictive effect on self-employment. The analysis is carried out with data collected in the Household, Income and Labour Dynamics in Australia Survey (HILDA). When financial literacy is assumed to be exogenous, the gender gap in financial literacy does not explain much (if any) of the gender gap in self-employment. When financial literacy is assumed to be endogenous the gender gap in financial literacy explains over one-quarter of the gender gap in self-employment One main finding is that studies that that do not directly address this endogeneity could be very misleading.

Presenter: Alison Preston, The University of Western Australia

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