For Working Moms, Entrepreneurship Beats the ‘Motherhood Penalty’

A new study of professional working mothers in Sweden finds that many turn to entrepreneurship after encountering the “motherhood penalty” at work. Wharton’s Tiantian Yang explains why her latest research challenges long-held assumptions about hard-working moms.

Professional women are more likely to launch their own businesses after becoming mothers because they experience discriminatory wage reduction known as the motherhood penalty, according to a new study from Wharton management professor Tiantian Yang.

Her co-authored paper, which examines the direct relationship between motherhood and entrepreneurship, challenges the narrative that working moms leave their lucrative careers mainly to gain more time with their families. It also shines a spotlight on broader gender inequality in the workplace.

“The reason a lot of mothers face motherhood earning penalties is not because they want to cut their work hours or they want to move to occupations that are more flexible. It’s because of employer discrimination,” Yang said during an interview with Wharton Business Daily on SiriusXM.

Her study, “The Motherhood Wage Penalty and Female Entrepreneurship,” was published online in Organization Science. The co-authors are Aleksandra (Olenka) Kacperczyk, strategy and entrepreneurship professor at London Business School, and Lucia Naldi, business administration professor at Jӧnkӧping International Business School.

The scholars used matched employer/employee data from Sweden that included the entire working population of that country, replete with details on occupation, pay, and child status. They compared mothers and childless women in the same organizations who held the same occupation to determine how many turned to entrepreneurship after motherhood. The larger the earning penalty those mothers experienced, the more likely they were to leave their employers and start their own businesses.

In Sweden, Working Moms Are Choosing Entrepreneurship

In the study, professional mothers faced an average 5% reduction on their yearly earnings with each child they had — a motherhood penalty that is conservative by U.S. estimates. Previous calculations have put that figure at 15% to 20% for American working moms with two or more children.

In Sweden, about 82% of female founders and 71% of self-employed women are mothers. But the study points out an important distinction between those groups. More professional women choose entrepreneurship after becoming mothers because they had the education, expertise, and networks to launch a venture. And that venture was more likely to be profitable if it was incorporated.

“Women could be using entrepreneurship to overcome their earning penalty in wage employment, but they have to be very selective in terms of the businesses they are going to create,” Yang said. “They would need to create businesses that are going to be incorporated and hire employees. The downside could be that it might intensify work-family conflict.”

To be sure, entrepreneurship is still dominated by men. In Sweden, women make up only 21% of founders and 36% of the self-employed, according to the paper.

The researchers also found that while Swedish mothers suffered a wage penalty, Swedish fathers with the same education, experience, and occupation as the moms have a “fatherhood wage premium” of about 2% a year.

“The perception that employers have about mothers lacking work commitment has really created a lot of earnings penalties for mothers, and many of them wouldn’t want to continue to advance their careers [with that employer],” Yang said. “That’s when they would enter entrepreneurship.”

What About Working Moms in America?

Yang said it’s difficult to conduct a similar, precise study in the United States because there are not similar datasets. Employment data on salaries, child status, and other demographics are not as detailed here as what is collected in Sweden. Still, she thinks a U.S. study could be done through in-depth interviews with working moms.

“By talking to women with children about the kind of struggles and obstacles they face in wage employment, and asking what are their approaches to career advancement, and how do they perceive entrepreneurship — I think that would be the approach,” Yang said.

She also thinks a U.S. study will find an even stronger correlation between motherhood and entrepreneurship.

“Because work conditions in American corporations are much less compatible with family responsibilities, I would expect even more acute discrimination against mothers in wage employment in the U.S. than in Sweden,” she said, adding that there are more financial resources and support to encourage female entrepreneurs in the U.S.

The professor noted that entrepreneurship is a cultural aspiration, particularly in the U.S. At least a third of her undergraduate students at Wharton have expressed interest in starting a business. For women, especially those who become mothers, Yang thinks it’s a viable way to advance their careers when they hit the motherhood paywall.

“I think for people who have managerial and professional skills that allow them to start a new business and allow them to manage employees, creating a new business is a great option,” she said.