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African Americans’ pursuit of self-employment

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  • Magnus Lofstrom

    ()

  • Timothy Bates

    ()

Abstract

We examine causes of black/white gaps in self-employment entry rates in the United States by recognizing that industry context heavily shapes impacts of owner resource endowments on the likelihood of successful entry. Barriers to entry, briefly stated, are high in some lines of business and low in others. We therefore proceed by explaining self-employment entry into separate subgroups of high- and low-barrier industries. Higher entry rates typifying whites, relative to African Americans, are traditionally interpreted as reflections of the former group’s greater personal wealth and human-capital resources. This consensus view, however, is simplistic: personal wealth holdings have no positive explanatory power for predicting entry into low-barrier lines of business. Our findings demonstrate, furthermore, that high educational attainment is a strong, positive predictor of entry into high-barrier fields, but not into low-barrier industries. Because industry context indeed shapes entry patterns, “one-size-fits-all” econometric models commonly used to predict entry into self-employment fall short. Copyright Springer Science+Business Media, LLC. 2013

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File URL: http://hdl.handle.net/10.1007/s11187-011-9347-2
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Bibliographic Info

Article provided by Springer in its journal Small Business Economics.

Volume (Year): 40 (2013)
Issue (Month): 1 (January)
Pages: 73-86

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Handle: RePEc:kap:sbusec:v:40:y:2013:i:1:p:73-86

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Web page: http://www.springerlink.com/link.asp?id=100338

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Keywords: Self-employment; Entrepreneurship; Entry barriers; African American; J15; J16; L26;

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  1. Bruce D. Meyer, 1990. "Why Are There So Few Black Entrepreneurs?," NBER Working Papers 3537, National Bureau of Economic Research, Inc.
  2. Timothy Bates & Robert McGuckin, 1990. "The Characteristics of Business Owners Data Base," Journal of Human Resources, University of Wisconsin Press, vol. 25(4), pages 736-751.
  3. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
  4. Robert W. Fairlie & Alicia M. Robb, 2007. "Why Are Black-Owned Businesses Less Successful than White-Owned Businesses? The Role of Families, Inheritances, and Business Human Capital," Journal of Labor Economics, University of Chicago Press, vol. 25, pages 289-323.
  5. Bates, Timothy, 1990. "Entrepreneur Human Capital Inputs and Small Business Longevity," The Review of Economics and Statistics, MIT Press, vol. 72(4), pages 551-59, November.
  6. Fairlie, Robert W, 1999. "The Absence of the African-American Owned Business: An Analysis of the Dynamics of Self-Employment," Journal of Labor Economics, University of Chicago Press, vol. 17(1), pages 80-108, January.
  7. Michael Hout & Harvey S. Rosen, 1999. "Self-Employment, Family Background, and Race," NBER Working Papers 7344, National Bureau of Economic Research, Inc.
  8. Philipp Köllinger & Maria Minniti, 2006. "Not for Lack of Trying: American Entrepreneurship in Black and White," Discussion Papers of DIW Berlin 574, DIW Berlin, German Institute for Economic Research.
  9. Dunn, Thomas & Holtz-Eakin, Douglas, 2000. "Financial Capital, Human Capital, and the Transition to Self-Employment: Evidence from Intergenerational Links," Journal of Labor Economics, University of Chicago Press, vol. 18(2), pages 282-305, April.
  10. Evans, David S & Leighton, Linda S, 1989. "Some Empirical Aspects of Entrepreneurship," American Economic Review, American Economic Association, vol. 79(3), pages 519-35, June.
  11. William D. Bradford, 2003. "The Wealth Dynamics of Entrepreneurship for Black and White Families in the U.S," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 49(1), pages 89-116, 03.
  12. Jovanovic, Boyan, 1982. "Selection and the Evolution of Industry," Econometrica, Econometric Society, vol. 50(3), pages 649-70, May.
  13. Bates, Timothy, 1995. "Self-employment entry across industry groups," Journal of Business Venturing, Elsevier, vol. 10(2), pages 143-156, March.
  14. Thomas Dunn & Douglas Holtz-Eakin, 2000. "Financial Capital, Human Capital, and the Transition to Self-Employment:Evidence from Intergenerational Links," NBER Working Papers 5622, National Bureau of Economic Research, Inc.
  15. George J. Borjas & Stephen G. Bronars, 1989. "Consumer Discrimination and Self-Employment," NBER Working Papers 2627, National Bureau of Economic Research, Inc.
  16. Paul D. Reynolds & Nancy M. Carter & William B. Gartner & Patricia G. Greene, 2004. "The Prevalence of Nascent Entrepreneurs in the United States: Evidence from the Panel Study of Entrepreneurial Dynamics," Small Business Economics, Springer, vol. 23(4), pages 263-284, November.
  17. Ken Cavalluzzo & John Wolken, 2005. "Small Business Loan Turndowns, Personal Wealth, and Discrimination," The Journal of Business, University of Chicago Press, vol. 78(6), pages 2153-2178, November.
  18. Timothy Bates & William D. Bradford, 2008. "Venture-Capital Investment in Minority Business," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 40(2-3), pages 489-504, 03.
  19. David G. Blanchflower & Phillip B. Levine & David J. Zimmerman, 2003. "Discrimination in the Small-Business Credit Market," The Review of Economics and Statistics, MIT Press, vol. 85(4), pages 930-943, November.
  20. Erik Hurst & Annamaria Lusardi, 2004. "Liquidity Constraints, Household Wealth, and Entrepreneurship," Journal of Political Economy, University of Chicago Press, vol. 112(2), pages 319-347, April.
  21. Evans, David S & Jovanovic, Boyan, 1989. "An Estimated Model of Entrepreneurial Choice under Liquidity Constraints," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 808-27, August.
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Cited by:
  1. M. Thomas, 2009. "The impact of education histories on the decision to become self-employed: a study of young, aspiring, minority business owners," Small Business Economics, Springer, vol. 33(4), pages 455-466, December.
  2. Robert W. Fairlie & Harry A. Krashinsky, 2012. "Liquidity Constraints, Household Wealth, and Entrepreneurship Revisited," CESifo Working Paper Series 3784, CESifo Group Munich.
  3. Michaelides, Marios, 2010. "Race and self-employment: The role of training programs, self-employment background, and access to financing," MPRA Paper 20884, University Library of Munich, Germany.
  4. Robert W. Fairlie, 2013. "Entrepreneurship, Economic Conditions, and the Great Recession," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 22(2), pages 207-231, 06.
  5. Uwaifo Oyelere, Ruth & Belton, Willie, 2008. "The Role of Information and Institutions in Understanding the Black-White Gap in Self-Employment," IZA Discussion Papers 3761, Institute for the Study of Labor (IZA).
  6. Joanna Georgios Alexopoulos & Anne Villamil, 2014. "The Effects Of Frictions In The Labormarket On Entrepreneurship And Economic Development," Anais do XL Encontro Nacional de Economia [Proceedings of the 40th Brazilian Economics Meeting] 045, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].
  7. Simoes, Nadia & Moreira, Sandrina B. & Crespo, Nuno, 2013. "Individual Determinants of Self-Employment Entry – What Do We Really Know?," MPRA Paper 48403, University Library of Munich, Germany.

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