Consumer Discrimination and Self-Employment
George J. Borjas
Harvard University - Harvard Kennedy School (HKS); National Bureau of Economic Research (NBER)
Stephen G. Bronars
University of Texas at Austin
NBER Working Paper No. w2627
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.
Number of Pages in PDF File: 42working papers series
Date posted: April 7, 2004
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