African Americans' Pursuit of Self-Employment

Magnus Lofstrom and Timothy Bates

No 3156, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: This study examines causes of black/white gaps in business ownership and self-employment rates by analyzing small-business entry and exit patterns. We proceed by recognizing heterogeneity in business ownership across different industry groups: a classification of firms by human- and financial-capital “intensiveness”, or entry barriers, we find, is useful for explaining racial differences in entrepreneurship. The barriers facing aspiring entrepreneurs seeking entry into low-barrier industries differ substantially from those limiting entry into high-barrier industries. Higher entry and lower exit rates typifying whites, relative to African Americans, are traditionally interpreted as reflections of the greater financial- and human-capital resources possessed by non-minorities. This consensus view, however, is simplistic. While education background is a powerful predictor of self-employment patterns in the low-barrier industries, advanced educational credentials actually predict lower entry: college graduates are less likely to select into low-barrier small business ownership. In the high-barrier fields, in contrast, college-educated individuals are more likely than less educated persons to enter into self employment. Overall, black presence in high-barrier fields is held down by lower net asset holdings and weaker educational credentials of potential and actual entrepreneurs. In the low-barrier industries, where the majority of black-owned businesses operate, net worth levels and educational backgrounds are trumped by the racial characteristic: low black entry and high exit rates are powerfully predicted by one's race.

Keywords: African American; self-employment; entrepreneurship; entry barriers (search for similar items in EconPapers)
JEL-codes: J15 L26 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2007-11
New Economics Papers: this item is included in nep-ent
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Citations: View citations in EconPapers (9)

Published - published in: Small Business Economics, 2013, 40 (1), 73-86

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Journal Article: African Americans’ pursuit of self-employment (2013)
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