Constraints, Opportunities, and the Decision to Pursue Business Ownership

Abstract

The choice between working as an employee and owning a business is shaped by constraints and opportunities. Among African Americans, understanding why the entrepreneurial path is chosen requires evaluating not only the relative importance of constraints pushing workers toward self-employment versus opportunities pulling entrants into firm ownership, but, more fundamentally, the changing opportunity structures shaping occupational choices. This study focuses on the 1960s and 1970s period when specific constraints historically limiting entrepreneurial alternatives began to change dramatically. Findings indicate that expanding opportunities sharply altered the industry composition of the Black business community.Because economists view the decision to enter into business ownership as an exercise in freedom of choice made on the basis of one’s preferences, they tend not to appreciate that these decisions are made in specific socio-economic contexts and that changes in context matter. Facing altered opportunity structures, prospective Black entrepreneurs have often chosen to abandon fields offering low remuneration—particularly personal services—entering instead into higher yielding fields where creation of viable firms requires investment of capital by owners possessing appropriate expertise. This transformation has remolded the stagnant business community of the mid-1960s into a profoundly different, more dynamic one.

Impact of college education on incorporated and unincorporated self-employment: variations among African Americans and Hispanics

“…However, African Americans were historically excluded as business owners outside of their communities. The constraints gradually subsided, and the prevailing attitudes changed in the last few decades (Bates and Tuck, 2014). As a result, African Americans are expanding their access to finance, education and employment choices.…”

“…As a result, African Americans are expanding their access to finance, education and employment choices. Nevertheless, small businesses owned by African Americans are still largely concentrated in their enclaved region (Bates and Tuck, 2014;Cummings, 1999;Fairchild, 2009). Unincorporated selfemployed often work as contractors, handymen, caregivers or other similar roles (Levine and Rubinstein, 2017).…”

“…This type of interpersonal service demands trust and loyalty from customers. African Americans can create businesses in their communities catering to co-ethnics (Bates and Tuck, 2014), but it is still difficult to overcome the stereotype bias and gain business from other races. Accordingly, we propose that the prevalence rate of unincorporated self-employment is likely low among African Americans.…”