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Negative Self Selection into Self-employment among African Americans

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  • Kawaguchi Daiji

    () (Faculty of Economics, Hitotsubashi University)

Abstract

This paper attempts to shed light on the mechanism behind the lower rate of self-employment (SE) among African Americans compared with whites. Both consumer discrimination and discrimination in the credit market, combined with anti-discrimination law enforcement in the salary/wage (SW) sector, explain why African Americans, those with high earning capacity in particular, are less likely to be SE because the cost of being discriminated against is high. Borjas and Bronars (1989) tested negative self-selection into SE among African Americans using Heckman's sample-selection correction under certain excluded variable assumptions. Using matched CPS panel data, this paper tests the same prediction without relying on any excluded variable assumptions. More specifically, current SW workers are divided into future SW and SE workers, and the distributions of the current earnings of these two groups are compared. The analysis reveals both positive and negative self-selection into SE among whites, but almost only negative self-selection among African Americans. This finding is consistent with the theoretical predictions of consumer and credit market discrimination against African-American self-employed workers and confirms Borjas and Bronars (1989)'s empirical results.

Suggested Citation

  • Kawaguchi Daiji, 2005. "Negative Self Selection into Self-employment among African Americans," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 5(1), pages 1-27, May.
  • Handle: RePEc:bpj:bejeap:v:topics.5:y:2005:i:1:n:9
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    Cited by:

    1. Aaron K. Chatterji & Kenneth Y. Chay & Robert W. Fairlie, 2014. "The Impact of City Contracting Set-Asides on Black Self-Employment and Employment," Journal of Labor Economics, University of Chicago Press, vol. 32(3), pages 507-561.
    2. Miller-Tait, Evan & Luckert, Marty & Mohapatra, Sandeep & Swallow, Brent, 2013. "Reconsidering Post Green Revolution Food Choices: New Processing Technologies and Food Security in India," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. 150347, Agricultural and Applied Economics Association.
    3. Bruder, Jana & Neuberger, Doris & Räthke-Döppner, Solvig, 2008. "Financial constraints of ethnic entrepreneurship: Evidence from Germany," Thuenen-Series of Applied Economic Theory 84, University of Rostock, Institute of Economics.
    4. Bogan, Vicki & Darity Jr., William, 2008. "Culture and entrepreneurship? African American and immigrant self-employment in the United States," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 37(5), pages 1999-2019, October.
    5. Lofstrom, Magnus & Wang, Chunbei, 2006. "Mexican-Hispanic Self-Employment Entry: The Role of Business Start-Up Constraints," IZA Discussion Papers 2422, Institute for the Study of Labor (IZA).

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