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Mexican-American Entrepreneurship

  • Fairlie, Robert W.

    ()

    (University of California, Santa Cruz)

  • Woodruff, Christopher

    ()

    (University of Warwick)

Although business ownership has implications for income inequality, wealth accumulation and job creation, surprisingly little research explores why Mexican-Americans are less likely to start businesses and why the businesses that they start are less successful on average than non-Latino whites. We conduct a comprehensive analysis of Mexican-American entrepreneurship using microdata from the 2000 U.S. Census, the matched and unmatched March and Outgoing Rotation Group Files of the Current Population Survey from 1994 to 2004, and the Legalized Population Survey (LPS). We find that low levels of education and wealth explain the entire gap between Mexican immigrants and non-Latino whites in business formation rates. Nearly the entire gap in business income for Mexican immigrants is explained by low levels of education and limited English language ability. Using the natural experiment created by the Immigration Reform and Control Act (IRCA), we find that legal status represents an additional barrier for Mexican immigrants. A conservative estimate suggests that the lack of legal status reduces business ownership rates by roughly seven-tenths of a percentage point for both men and women. Human and financial capital deficiencies are found to limit business ownership and business success among second and third-generation Mexican-Americans, but to a lesser extent. These findings have implications for the debates over the selection of immigrants and the assimilation of Mexican-Americans in the U.S. economy.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 3488.

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Length: 55 pages
Date of creation: May 2008
Date of revision:
Handle: RePEc:iza:izadps:dp3488
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  1. Oaxaca, Ronald, 1973. "Male-Female Wage Differentials in Urban Labor Markets," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 14(3), pages 693-709, October.
  2. Stephen J. Trejo, 2003. "Intergenerational Progress of Mexican-Origin Workers in the U.S. Labor Market," Journal of Human Resources, University of Wisconsin Press, vol. 38(3).
  3. 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.
  4. Trejo, Stephen J, 1997. "Why Do Mexican Americans Earn Low Wages?," Journal of Political Economy, University of Chicago Press, vol. 105(6), pages 1235-68, December.
  5. Ken S. Cavalluzzo, 2002. "Competition, Small Business Financing, and Discrimination: Evidence from a New Survey," The Journal of Business, University of Chicago Press, vol. 75(4), pages 641-680, October.
  6. Kossoudji, S.A. & Cobb-Clark, D.A., 1996. "Coming Out of the Shadows: Learning About Legal Status and Wages from the Legalized Population," CEPR Discussion Papers 347, Centre for Economic Policy Research, Research School of Economics, Australian National University.
  7. Cobb-Clark, Deborah A. & Hildebrand, Vincent A., 2004. "The Wealth of Mexican Americans," IZA Discussion Papers 1150, Institute for the Study of Labor (IZA).
  8. 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.
  9. Fairlie, Robert, 2014. "Why Are Black-Owned Businesses Less Successful than White-Owned Businesses?Ă‚ The Role of Families, Inheritances, and Business Human Capital," Santa Cruz Department of Economics, Working Paper Series qt86r7z28d, Department of Economics, UC Santa Cruz.
  10. 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.
  11. 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.
  12. 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.
  13. Michael Hout & Harvey Rosen, 2000. "Self-Employment, Family Background, and Race," Journal of Human Resources, University of Wisconsin Press, vol. 35(4), pages 670-692.
  14. Thomas Dunn & Douglas Holtz-Eakin, 1996. "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. 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.
  16. Lofstrom, Magnus & Wang, Chunbei, 2006. "Hispanic Self-Employment: A Dynamic Analysis of Business Ownership," IZA Discussion Papers 2101, Institute for the Study of Labor (IZA).
  17. George J. Borjas & Stephen G. Bronars, 1988. "Consumer Discrimination and Self-Employment," NBER Working Papers 2627, National Bureau of Economic Research, Inc.
  18. Avery, Robert B. & Bostic, Raphael W. & Samolyk, Katherine A., 1998. "The role of personal wealth in small business finance," Journal of Banking & Finance, Elsevier, vol. 22(6-8), pages 1019-1061, August.
  19. 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.
  20. 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.
  21. Robert W. Fairlie & Bruce D. Meyer, 1996. "Ethnic and Racial Self-Employment Differences and Possible Explanations," Journal of Human Resources, University of Wisconsin Press, vol. 31(4), pages 757-793.
  22. Douglas Holtz-Eakin & David Joulfaian & Harvey S. Rosen, 1993. "Entrepreneurial Decisions and Liquidity Constraints," NBER Working Papers 4526, National Bureau of Economic Research, Inc.
  23. Kenneth Clark & Stephen Drinkwater, 2002. "Enclaves, neighbourhood effects and employment outcomes: Ethnic minorities in England and Wales," Journal of Population Economics, Springer, vol. 15(1), pages 5-29.
  24. Magnus Lofstrom, 2002. "Labor market assimilation and the self-employment decision of immigrant entrepreneurs," Journal of Population Economics, Springer, vol. 15(1), pages 83-114.
  25. Oaxaca, Ronald L. & Ransom, Michael R., 1994. "On discrimination and the decomposition of wage differentials," Journal of Econometrics, Elsevier, vol. 61(1), pages 5-21, March.
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