Barriers to Black Entrepreneurship: Implications for Welfare and Aggregate Output over Time

The number of black-owned businesses in the U.S. has increased dramatically since the 1980s, even compared to the number of non-black-owned businesses and the rise in black labor-market participation. In 1982 less than 4 percent of black labor-market participants owned businesses, compared to over 14 percent of other participants. By 2012 more than 16 percent of black participants owned businesses while the analogous rate for non-black participants increased to only 19 percent. Combined with other evidence, this suggests black entrepreneurs have faced significant barriers to starting and running businesses and these barriers have declined over time. We examine the impact of these trends on aggregate output and welfare. Interpreted through a model of entrepreneurship, declining barriers from 1982 to 2012 led to a permanent 1.4 percent increase in (consumption-equivalent) black welfare, a 0.7 percent increase in output per worker (a small fraction of the observed 70 percent increase), and a 0.5 percent decrease in the welfare of other labor-market participants. These impacts are in addition to any gains from declining labor-market barriers.