EntErprisE survEys EntErprisE notE sEriEs

There is a growing body of evidence which suggests that relative to male-owned businesses, female-owned businesses suffer various disadvantages leading to their lower efficiency—the female-owned business underperformance hypothesis. Firm performance is typically measured by firm-size, labor productivity or various estimates of total factor productivity. However, a key shortcoming of this literature is that it is almost entirely focused on developed countries and the formal or the registered sector. For example, focusing on the formal sector in the United States, Brush et al. (2006), among others, find that the average revenue of female-owned firms equaled US$151,130, about 26 percent of revenue for male-owned businesses. Moving from firm-size to profitability, Sabarwal and Terrell (2008) find that femaleowned businesses in the formal sector in 26 transition countries are significantly less profitable than male-owned businesses. The authors attribute the bulk of this difference to the relatively smaller size of female-owned firms. Formal analysis of malevs. female-owned businesses in the informal or the unregistered sector of developing countries is important for at least two reasons. First, the informal economy is large, especially in developing countries. Recent estimates suggest that globally, between 23 percent and 35 percent of all economic activity occurs in the informal economy; while for countries in the lowest quartile of GDP per capita, the estimates increase to between 29 and 57 percent (La Porta and Shleifer 2008). Second, anecdotal evidence suggests that the informal economy has a disproportionately larger presence of females than males compared with the formal economy. Hence, the informal economy is particularly important for gender related issues. This note uses recently collected data on informal or unregistered firms in Argentina and Peru, collected by the World Bank’s Enterprise Analysis Unit in 2010.1 The data cover 384 firms in Argentina and 480 firms in Peru. Firms were randomly selected from two cities in Argentina (Buenos Aires and Rosario) and two cities in Peru (Lima and Arequipa). It is important to note that due to lack of proper sampling frames, these surveys are not necessarily representative of the informal economy at the country or even the city level. Hence, the results presented below pertain to the structure of the informal firms surveyed rather than the informal economy per se. Extension of these results to the broader informal economy requires due caution. The female-owned business under-performance hypothesis is analyzed using labor productivity measured by sales per worker in a regular month (USD, log values) and firm-size measured by total sales in a regular month (USD, log values).2 Female-owned businesses include all businesses that have a female largest owner. The remaining Labor Productivity, Firm-size and Gender: The Case of Informal Firms in Argentina and Peru