The unexpected loss of childcare during the pandemic disrupted life at home, especially for working mothers, and may have affected their decision to start their own business. Credit: Oksun70|Dreamstime.com.
The COVID-19 pandemic had a silver lining in some cases: The sudden interruption of daily routines was an opportunity to reconsider life choices. This was perhaps especially true for working mothers who lost their childcare providers, which may have increased the value of work flexibility. For women who had already been pondering self-employment, the pandemic may have been a powerful nudge to join the ranks of entrepreneurs.
Indeed, two-thirds of American women age 40 and older who started a small business between January 2020 and June 2022 named the pandemic as a motivating factor—and 98% considered their business launch the right choice up to two years later.
Such data prompted AAE associate professor Tessa Conroy to ask a natural follow-up question: Did more women start businesses in counties with mandatory childcare closure policies than those without them? The answer was a clear ‘yes.’
“Our study showed that the number of new women-owned businesses in 2021 was 28% higher in counties with mandatory closures,” says Conroy. “Although we were unable to identify specific reasons, these closures were likely perceived as an acute life change at home that also caused changes in work preferences.”
For Conroy and co-author Anil Rupasingha, U.S. Department of Agriculture, the pandemic created a so-called natural experiment, with some areas closing childcare facilities in March and April 2020 and others remaining open. The researchers compared “treated” counties in 30 states with closures to untreated “control” counties in 20 states without them, assuming that all 3,108 analyzed counties followed their state’s policy.
Most closure durations ranged from 30 to 40 days, with extreme values of 8 for Alabama and 98 for New York. Closure details, such as exceptions for essential workers, and limitation details, such as maximum group sizes of supervised children, were highly variable. The duration of limitations exceeded more than six months in 15 states.
Before the pandemic, a typical county saw 20 to 30 new female-owned businesses per year, according to a comprehensive dataset called the National Establishment Time Series. That number was substantially higher in ~1,100 urban than ~2,000 rural counties, with 50-90 versus 3-5 new businesses per year. Business growth declined rapidly in 2020, followed by a rebound in 2021. The greater increase of new women-owned businesses in counties with mandatory childcare closures was more pronounced in urban (36%) than rural counties (25%).
“This difference makes sense since the margin of adjustment was smaller in rural counties, where women were already used to the scarcity of childcare before the pandemic,” says Conroy. “Rural areas also offer fewer market opportunities, an important factor in the decision-making process of potential entrepreneurs.”
The greater business growth in counties with closures mostly occurred in the service industry, not in the production or trade sectors. This was evidence against the common belief that women gravitate toward the online retail space for handmade goods; instead, notes Conroy, post-pandemic women-owned businesses appeared to be multifaceted.
In the absence of survey data, the researchers could not distinguish between opportunity and necessity entrepreneurship. The former is driven by innovation or a lucrative market opening while the latter is due to losing a job or working spouse, difficulty finding a salaried job or underemployment.
Most entrepreneurial success metrics focus on business survival and economic productivity, such as growth in the founder’s income and the number of employees. However, a profit-maximizing path may not be a priority for all founders, and researchers have documented a distribution of success for both types of entrepreneurs.
“We don‘t know a founder’s trajectory at the onset, and starting from necessity doesn‘t mean a business is doomed to fail,” says Conroy. “I think success metrics should include the household-level impact of strategies to manage multiple demands and the benefits of flexible work schedules for young children.”
The results have a clear policy implication: Offering childcare or flexible work schedules and locations is critical when employers experience labor shortages. Childcare options also promote regional entrepreneurship—especially when female founders wish to grow their business.
A less obvious but equally important take-home message: The reasons for performance differences between male and female founders are complex. Previously reported reasons include men being more likely to start manufacturing businesses, which often require more employees and produce higher revenue than those in the women-dominated service sector. Differences in personality and educational background, such as fewer women having a formal business degree, have also been noted.
The new study adds to the evidence for gender differences in founders’ intrinsic motivation for launching a business. Yet, regardless of its inspiration, entrepreneurship often produces positive outcomes by multiple metrics, says Conroy.
Last but not least, the study confirms the vital role of childcare for the female labor market and society at large. It supports early childhood development and the ability of parents to provide for their families, in addition to helping employers find the workers they need.
“High-quality childcare is an investment in improved outcomes later in life, such as higher test scores and graduation rates and a lower propensity for crime,” says Conroy. “For economists, these ‘positive externalities’ are a fundamental argument for government support of a public good, in this case making childcare both available and affordable.”