The Gender Pay Gap and Its Impact on Female Entrepreneurship: A Panel Data Analysis of Indian States

Abstract

The gender pay gap has been a prominent issue in India. Using panel data from the periodic labour force reports, this paper examines how the gender wage gap affects the female entrepreneurship rate in 36 Indian states and union territories across 2017 and 2024. The paper also focuses on factors such as working time for female entrepreneurs, female labour force participation rate, female unemployment rate, share of females in higher education and state-wise GDP using FGLS regression analysis. Additionally, in order to ensure accurate reporting and interpretation of data, diagnostic tests for multicollinearity, autocorrelation and heteroskedasticity were conducted. The results of the study revealed that there is no significant relationship between the gender pay gap and the female entrepreneurship rate in India, suggesting that income inequality for females does not directly correlate with the female entrepreneurship rate. However, the female labour force participation rate shows a positive impact, while working time, female unemployment rate and share of women in higher education depict an inverse relationship with the female entrepreneurship rate. The gender wage gap remains highly concentrated across states and formal sectors that are generally male-dominated, making it a less relevant factor for women entrepreneurs in India to consider, as they usually start small, informal businesses from home. Future policy implementations should provide access to finances like loans and credits for women, and awareness programs that encourage flexible working schedules and prevent gender-based stereotypes, essential for shaping female entrepreneurship decisions in India.