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Consumer Discrimination and Self-Employment

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  • George J. Borjas
  • Stephen G. Bronars

Abstract

Self-employment rates and incomes differ significantly by race. We show that these differentials arise in markets with consumer discrimination and incomplete information about the price of the good and the race of the seller. Equilibrium income distributions have two properties: mean black incomes are lower than mean white incomes, and the returns to ability are lower for black than for white sellers. Able blacks, therefore, are less likely to self-select into the self-employment sector than able whites. Using the 1980 Census data, we find that observed differences in the self-employment income distributions are consistent with the theoretical predictions.

Suggested Citation

  • George J. Borjas & Stephen G. Bronars, 1988. "Consumer Discrimination and Self-Employment," NBER Working Papers 2627, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:2627
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    References listed on IDEAS

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    1. Leonard, Jonathan S, 1984. "Employment and Occupational Advance under Affirmative Action," The Review of Economics and Statistics, MIT Press, vol. 66(3), pages 377-385, August.
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    6. Heckman, James, 2013. "Sample selection bias as a specification error," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 31(3), pages 129-137.
    7. Matthew S. Goldberg, 1982. "Discrimination, Nepotism, and Long-Run Wage Differentials," The Quarterly Journal of Economics, Oxford University Press, vol. 97(2), pages 307-319.
    8. George J. Borjas, 1986. "The Self-Employment Experience of Immigrants," Journal of Human Resources, University of Wisconsin Press, vol. 21(4), pages 485-506.
    9. A. D. Roy, 1951. "Some Thoughts On The Distribution Of Earnings," Oxford Economic Papers, Oxford University Press, vol. 3(2), pages 135-146.
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