Are Liquidity Constraints Holding Women Back? An Analysis of Gender in Self-Employment Earnings

In Canada, the 1999 mean self-employment earnings for women is $22,995 compared with $38,350 for men (Devlin, 2001). The majority of this earnings gap is unexplained. In this paper, I investigate liquidity constraints as a potential determinant of the gender gap. Consistent with Hurst and Lusardi (2004) I find that the relationship between liquidity and self-employment is non-linear. Furthermore, the non-linearity is asymmetric across gender. In particular, women's earnings are affected at lower levels of liquidity. Using a baseline specification, I estimate that over 95 percent of the earnings gap would be eliminated in the absence of liquidity constraints.