Is the Informal Economy an Incubator for New Enterprise Creation? A Gender Perspective

Abstract

Purpose – The purpose of this paper is to examine whether men and women starting a business use the informal economy and do so to test the viability of their venture.

Design/methodology/approach – To do this, the results of a survey of 595 small business owners in the UK conducted in August 2012 are reported.

Findings – Of the 22 per cent of men and 13 per cent of women small business owners reporting that they traded informally when starting their business, 66 per cent of the men and 53 per cent of the women assert that a main reason was to test the viability of their business. Hence, just over one in six small businesses started by men and one in 14 started by women (one in eight overall) traded in the informal economy when starting-up in order to test the viability of the business.

Research limitations/implications – A more extensive survey of a wider range of countries is required to further evaluate the tentative findings of this single country small-scale survey.

Practical implications – If tax administrations seek to stamp out informal sector entrepreneurship, one hand of government will be eradicating a significant minority of the entrepreneurship that other hands of government wish to foster. Men and women starting-up informally, however, require different policy approaches to help them formalise their business ventures.

Originality/value – This is the first paper to analyse whether men and women starting a business trade informally at the outset to test its viability.

Keywords: Gender, Informal economy, Shadow economy, Start-ups, Venture creation

JEL Classification: H26, J46, J48, K34, K42, O17, P2, P3