Minority self-employment in the United States and the impact of affirmative action programs

Abstract

In this paper I examine changes in self-employment that have occurred since the early 1980s in the United States. It is a companion paper to a recent equivalent paper that related to the UK. Data on random samples of approximately twenty million US workers are examined taken from the Basic Monthly files of the CPS (BMCPS), the 2000 Census and the 2006 American Community Survey (ACS). In contrast to the official definition of self-employment which simply counts the numbers of unincorporated self-employed, we also include the incorporated self-employed who are paid wages and salaries. The paper presents evidence on trends in self-employment for the US by race, ethnicity and gender. Evidence is also presented for construction which has self-employment rates roughly double the national rates and where there are strikingly high racial and gender disparities in self-employment rates. The construction sector is also important given the existence of public sector affirmative action programs at the federal, state and local levels directed at firms owned by women and minorities. I document the fact that disparities between the self-employment rates of white men and white women and minorities in construction narrowed in the 1980s, widened during the 1990s after the US Supreme Court's decision in Croson but then narrowed again since 2000 after a number of legal cases, which found such programs constitutional. Despite this, substantial disparities remain, particularly in earnings. I also find evidence of discrimination in the small business credit market. Firms owned by minorities in general and blacks in particular are much more likely to have their loans denied and pay higher interest than is the case for white males. This is only partially explained by their lack of creditworthiness and is consistent with a finding of discrimination in the credit market by banks

Impacts of Owner Race and Geographic Context on Access to Small-Business Financing

“…Black-owned firms have been more widely studied than other MBEs and their difficulty accessing financing is not controversial (see Bates, 1973;Blanchflower, 2009). The issue emphasized by SSBF-based studies is whether Black firms (and MBEs generally) possessing identical risk-related traits (other than race) have less access to bank credit than Whites.…”

Does the Caste of the Firm Owner Play a Role in Access to Finance for Small Enterprises? Evidence from India

“…In a well-cited study, Robb and Fairlie (2007, p. 67) highlight that "minority-owned businesses lag behind nonminority-owned businesses in terms of sales, profits, survivability, and employment; facing greater obstacles in obtaining financing for their businesses implies that an already difficult situation is growing worse." Risk-averse formal financial institutions are reluctant to lend to firms owned by minorities or to charge higher interest rates from them due to the great credit risk associated with such social groups (Blanchflower 2009).…”

Entrepreneurship, finance and employment

“…The shape of the return distribution and limited liability interact; the option to declare bankruptcy shields owners from personal loss in the lower tail of the distribution while preserving the potential for significant firm returns in the upper tail. Blanchflower (2009) studies self-employment in the United States, using data from the Current Population Survey, the 2000 Census, and the 2006 American Community Survey, which combines data at the individual level with data at the small firm level from the 2003 Survey of Small Firm Finances. His main finding is of persistent and large disparities in self-employment and earnings between white males and others.…”