Testimony of Patrice Onwuka, Independent Women's Forum — Senate Small Business Committee, July 26, 2023

Summary

Written testimony by Patrice Onwuka, Director of the Center for Economic Opportunity at Independent Women's Forum, to the United States Senate Committee on Small Business & Entrepreneurship, dated July 26, 2023, for the hearing "Pathways to Women's Entrepreneurship: Understanding Opportunities and Barriers." The testimony reports figures on women-owned businesses, including that women own 12 million small businesses generating $2.1 trillion in total sales. It lists challenges such as access to capital and networks, and argues that occupational licensing rules and restrictions on independent contracting are government-imposed barriers. It also discusses child care, SBA loan eligibility for nonprofit childcare providers, and regulatory costs on small businesses. It closes by urging Congress to exercise oversight of the SBA, which it says has not been reauthorized in two decades.

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                  Testimony to the United States Senate
              Committee on Small Business & Entrepreneurship

    Hearing: “Pathways to Women’s Entrepreneurship: Understanding
                      Opportunities and Barriers”

                               Patrice Onwuka
                  Director, Center for Economic Opportunity
                        Independent Women’s Forum

                                 Washington, D.C.
                                  July 26, 2023

Chairman Cardin, Ranking Member Ernst, and Members of the Committee, thank
you for inviting me to appear today.

My name is Patrice Onwuka, and I am the director of the Center for Economic
Opportunity at Independent Women’s Forum. We are a nonprofit organization,
committed to increasing the number of women who value free markets and
personal liberty. We advance policies that enhance people’s freedom, opportunities,
and well-being.

Small business ownership has created ladders of opportunity for women of all ages,
races, and backgrounds. Entrepreneurship offers a pathway to achieve work-life
balance, experience fulfillment, and better one’s community.

Finding ways to ensure individuals can engage in entrepreneurial pursuits is
admirable, but more importantly, it’s critical to ensure that government policies do
not erect barriers to opportunity. We appreciate that this committee seeks bipartisan
solutions to dismantle those barriers and promote entrepreneurship to ensure
economic growth for women-owned businesses and prosperity for all.

Overview of Women-Owned Businesses
The growth of female entrepreneurship has been tremendous over the past decades,
but particularly in recent years in good part due to technology.

Today, women own 12 million small businesses (43% of all small businesses)
generating $2.1 trillion in total sales. Only about one in ten (1.1 million) of these
businesses are employer firms, employing 10.1 million workers. Most women-owned
businesses are one-woman shops. The 10.9 million self-employed women-owned
firms generated about $300 billion in sales according to the Census Bureau Annual
Business Survey, 2018.



                      4 Weems Lane, #312 • Winchester, VA 22601 | iwf.org | 202-807-9986
Women were starting an average of 1,817 new businesses per day in the U.S. just
before the pandemic, according to an analysis commissioned by American Express.

Women-owned businesses are concentrated in certain sectors, and these sectors
track closely with women’s labor force participation in the labor market. Health care
and social assistance is the top industry for female businesses (216,000) followed
closely by professional, scientific, and technical services (207,00). Retail trade,
services, and accommodation and food services round out the top five industries.

Demographic characteristics of women-owned businesses largely reflect the racial
diversity of our nation. According to one national survey by Guidant Financial, the
racial breakdowns of these firms are as follows: 78.4% white, 11.3% Black, 4.6%
Hispanic, 4.6% Asian, and 1% Middle Eastern. Interestingly, from 2022 to 2023, the
number of women business owners who identify as “Black or African-American”
increased by 33%.

Generationally, most women business owners are middle-aged and older.

Despite tremendous gains, women have not reached parity with men in starting
businesses. In 2021, about four in ten new entrepreneurs were women, and the share
of women among new entrepreneurs has remained relatively consistent over
decades.

Examining business types, we find that most women started their businesses from
scratch (59%) rather than buying an existing company (40%). Women-owned
franchises outpace women-owned independent businesses by a margin of 52% to
47%. Of the women who are franchisees, more (34%) bought their own location
instead of purchasing an existing franchise location (10%).

Motivations for entrepreneurship

Most female business owners strike out on their own because they desire
independence, flexibility, and the ability to fulfill their passion. These motivations set
them apart from their male counterparts.

According to a survey conducted by Guidant, the leading pull and push factors
drawing women into entrepreneurship are autonomy and flexibility (27%) and
dissatisfaction with Corporate America (23%). Women are also more likely than men
to launch a business based on passion.

For many women, entrepreneurship is not a sudden decision, but a long-standing
ambition. Some 84% of female business owners polled said they had dreams of
starting their own business for “as long as they could remember.” The COVID-19
pandemic also motivated nearly two out of three (61%) women to start a business in
the past few years.




                        4 Weems Lane, #312 • Winchester, VA 22601 | iwf.org | 202-807-9986
Challenges Facing Women Entrepreneurs
Despite many bright spots, women’s businesses face struggles. A survey of 1,000
female small business owners commissioned for Office Depot found that one in six
are stressed out every day.

Women face similar economic challenges to men, such as labor shortages, inflation,
regulations, taxes, and uncertain economic conditions.

Women-owned firms tend to be younger and smaller than their male counterparts,
which could account for some of their revenue differences.

Average revenues of women-owned businesses are rising but are behind those of
firms owned by men. Women-owned employer firms hire fewer workers and earn
less. According to Census data from 2018, the average annual earnings of employees
of women-owned firms lag behind the national earnings average of the workers of all
firms by over $15,000 ($38,238 in average annual payroll per employee compared
with $54,114).

Lack of access to capital is a perennial problem. In 2022, female-founded companies
garnered just 2.1% of the total capital invested in venture-backed startups in the U.S.
Men start their businesses with six times as much capital as women. Nearly half
(47%) of women business owners said a lack of funds was their toughest startup
challenge and of those, over half pointed to high startup costs with business. A large
majority (60%) of female business owners polled believe they do not have the same
access to capital that men have.

Women lack robust networks. Almost half (48%) of female founders cite a lack of
available mentors or advisors as an impediment. Nearly a third (29%) of women in a
poll cited networking as their biggest challenge.

Some of the challenges noted, from high costs of goods and services to labor
shortages, are impacted by government policies but are economic in nature.

Two additional challenges to starting businesses are directly the results of
government-imposed barriers to building human capital: overly-restrictive
occupational licensure laws and restrictions on independent contracting.

Credentialing Challenges
Occupational licenses are intended to prevent consumer harm from unskilled or
inexperienced workers. Unfortunately, they can also become an impediment to
opportunity for women by limiting competition and discouraging entrepreneurship.

Before beginning a job in certain occupations and fields, states often require that an
individual obtain an occupational license. This credential is supposed to verify that
she has obtained a certain level of education, training, and testing to deliver a good


                       4 Weems Lane, #312 • Winchester, VA 22601 | iwf.org | 202-807-9986
or service. Over the past 60 years, the preponderance of occupational licenses has
risen from just 5% of workers in the 1950s to more than one out of four workers today.

Despite claims by supporters, some licenses have no connection to public health or
safety at all. Instead, they serve to protect established businesses against new
competition, allowing them to keep prices for their services artificially high.

Excessive occupational licensing has robbed our economy of nearly 3 million jobs,
cost the national economy $6 billion, and prevented workers who already face social
and economic challenges from gaining access to opportunities and economic
mobility.

Occupational licenses are required for industries that women-owned businesses are
concentrated in, including personal care services such as hair styling and care, skin
care, makeup artistry, nail styling, waxing and threading; and health care and social
assistance. They place a burden on many women, especially those with few means
and in need of opportunity, such as immigrant workers and those with criminal
records.

Often the requirements for an occupational license are prohibitive for those without
money or time to pursue them and may vary from state to state. For example, Texas
imposes no makeup artistry license, but if a makeup artist moves one state over to
Oklahoma, she would have to clock 600 hours of education before obtaining a
license to work.

Military spouses are uniquely affected by excessive licensing. Nearly all of the
600,000 military spouses in the U.S. are highly educated (89% have some college
education) but experience an astoundingly high 33% underemployment rate.
Because states vary in the requirements for a given occupation, it is difficult for
workers who move frequently, such as military spouses, to be gainfully employed.

Over the past few years, bipartisan support for occupational licensing reform has
unified Presidents Barack Obama and Donald Trump and governors of red and blue
states. There is no national standard, nor should there be, as it could unintentionally
force states to create licenses that did not exist before or to increase licensing
requirements that were not as high to the new national level. However, the federal
government can provide resources and encouragement—such as through the
Federal Trade Commission—for states to design their own reforms.

Individuals who want to start their own businesses should not be limited by onerous,
excessive licensing requirements that serve only to limit competition instead of
encourage it.

Independent Contracting
Freelancing offers opportunities for women to launch small businesses across the
country, but that entrepreneurial spirit is at risk from legislative and regulatory
challenges.



                      4 Weems Lane, #312 • Winchester, VA 22601 | iwf.org | 202-807-9986
In 2022, an estimated 65 million people freelanced. Unlike traditional employees,
independent contractors (including freelancers, gig workers, and consultants)
control when, where, and how they work. This flexibility is one reason that
contracting jobs are increasing in popularity, especially among women. In a 2018
survey of female gig workers, flexibility ranked highest among valued aspects of
freelancing.

Independent contractors understand there is a tradeoff with this arrangement.
Instead of a guaranteed salary and benefits, they receive the flexibility to determine
their schedule and the autonomy to decide whom to work for, what work they do (or
don’t do), and how they get it done (i.e. being their own boss). Nearly 75% of
freelancers are working independently by choice. Nearly two out of three women
working in the gig economy (61%) would prefer to be independent while only 12%
said they would want to be an employee of the company for which they gig.

In 2019, the California legislature passed Assembly Bill 5, a law that drastically
changed the employment arrangements for at least one million independent
contractors across the state. The law, which took effect on January 1, 2020, requires
that employers prove they meet the ABC test for their workers to be lawfully
classified as independent contractors. Proponents assumed that businesses will
simply hire their contracted workforce as employees and offer them all the benefits
of salaried workers. This ignored the substantial costs to businesses, as well as the
preferences of workers. AB5’s passage and enactment spawned the loss of income,
contracts, and livelihoods of thousands of workers across the state.

Efforts to reclassify independent work nationally would have sweeping impacts on
freelancers and the companies that hire them. A study by the American Action
Forum estimates that the costs of reclassifying independent contractors as
employees under a more stringent test could produce between $18.4 and $61.4
billion in additional weekly employment costs for businesses. A national version of
AB5 could risk up to 8.5% ($2.2 trillion) of the U.S. GDP.

Congress and regulators should not nationalize labor policy that could destroy
income-generating entrepreneurial pursuits for enterprising men and women.

Child Care
The flexibility that entrepreneurship offers can help women balance caregiving
responsibilities. However, even with flexibility, child care can be a challenge for some
women.

Policymakers should find ways to make childcare options more affordable, plentiful,
and diverse. Diverse is key. Most parents do not prefer formal daycare settings
according to a 2022 report by the Bipartisan Policy Center and Morning Consult.
Nearly six in ten parents preferred informal child care over formal childcare centers,
even if formal care was free and in a convenient location.




                       4 Weems Lane, #312 • Winchester, VA 22601 | iwf.org | 202-807-9986
Eliminating unnecessary red tape that especially burdens home-based care facilities
is a good place to start. A Mercatus Center study found that costs of care could be
reduced by between $850 and $1,890 per child per year by eliminating regulations
not related to the quality of care. Such efforts do not have to sacrifice safety and
quality but will ensure that providers, especially smaller and at-home providers, can
enter the marketplace giving parents more and better options.

In addition, Congress can consider opening up to nonprofit childcare providers the
funding programs that for-profit providers have access to at the Small Business
Administration (SBA). Presently, nonprofit childcare providers are ineligible for
certain types of Small Business Administration (SBA) loan programs that are
available to for-profits. While nonprofit providers can apply for the SBA microloan
program which is capped at $50,000 and limits how the money can be spent,
for-profit providers have the option to apply for more flexible programs that can
provide loans up to $5.5 million and can be used for a variety of purposes.

If enacted, the Small Business Child Care Investment Act would allow qualified
nonprofit childcare providers to access these same types of SBA loans to finance the
startup and operational costs necessary to provide high-quality care.

Opportunities
Protecting independent contracting from sweeping reclassification through federal
law or regulation is an important step that Congress must be committed to if it
wants to ensure that women’s entrepreneurship thrives. Most female entrepreneurs
are self-employed and unnecessarily reclassifying millions of independent
contractors would destroy their income-generating livelihoods and side hustles.

Congress should also consider reducing the regulatory burdens placed on small
businesses. Analysis by the U.S. Chamber of Commerce finds that regulatory costs
amount to on average $11,700 per employee each year. Businesses with 50 or fewer
employees incur regulatory costs that are nearly 20% higher than for the average
firm. Cumulatively, economically significant federal rules for small businesses
amount to over $40 billion per year in regulatory costs. This is overwhelming for
small businesses, especially if they are solo enterprises.

The Small Business Administration (SBA) is the one agency of government devoted
to the preservation of our nation’s small businesses. At minimum, Congress should
consider directing the SBA to quantify and monitor federal regulatory costs on small
businesses.

The SBA also has dedicated programs and efforts for women-owned small
businesses including funding, counseling, and federal contracting. It is important to
assess if these programs are meeting their goals, being effective, and truly
expanding access and opportunity for women.




                      4 Weems Lane, #312 • Winchester, VA 22601 | iwf.org | 202-807-9986
Congress can employ greater oversight of the SBA and understand areas of
improvement by reauthorizing the agency as it does other agencies. The SBA has not
been reauthorized in two decades.

Congress can also consider how private nonprofit organizations that receive federal
funding are helping women start and grow their businesses.

Conclusion
Women-owned businesses must continue to thrive. The government serves a critical
role in ensuring that it does not squelch the entrepreneurial spirit through
heavy-handed, costly, and opportunity-killing regulations or ineffective programs.

Thank you for your time.




                      4 Weems Lane, #312 • Winchester, VA 22601 | iwf.org | 202-807-9986


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