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Consumer Discrimination and Self-Employment

  • George J. Borjas
  • Stephen G. Bronars

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.

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File URL: http://www.nber.org/papers/w2627.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 2627.

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Date of creation: Jun 1988
Date of revision:
Publication status: published as Journal of Political Economy, Vol. 97, No. 3, pp. 581-605, (June 1989).
Handle: RePEc:nbr:nberwo:2627
Note: LS
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  1. Lazear, Edward P & Moore, Robert L, 1984. "Incentives, Productivity, and Labor Contracts," The Quarterly Journal of Economics, MIT Press, vol. 99(2), pages 275-96, May.
  2. Goldberg, Matthew S, 1982. "Discrimination, Nepotism, and Long-Run Wage Differentials," The Quarterly Journal of Economics, MIT Press, vol. 97(2), pages 307-19, May.
  3. Blau, David M, 1987. "A Time-Series Analysis of Self-employment in the United State," Journal of Political Economy, University of Chicago Press, vol. 95(3), pages 445-67, June.
  4. George J. Borjas, 1986. "The Self-Employment Experience of Immigrants," Journal of Human Resources, University of Wisconsin Press, vol. 21(4), pages 485-506.
  5. Leonard, Jonathan S, 1984. "Employment and Occupational Advance under Affirmative Action," The Review of Economics and Statistics, MIT Press, vol. 66(3), pages 377-85, August.
  6. Moore, Robert L, 1983. "Employer Discrimination: Evidence from Self-Employed Workers," The Review of Economics and Statistics, MIT Press, vol. 65(3), pages 496-501, August.
  7. Heckman, James, 2013. "Sample selection bias as a specification error," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 31(3), pages 129-137.
  8. Carlson, John A & McAfee, R Preston, 1983. "Discrete Equilibrium Price Dispersion," Journal of Political Economy, University of Chicago Press, vol. 91(3), pages 480-93, June.
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