The Absence of the African-American-Owned Business: An Analysis of the Dynamics of Self-Employment

Abstract

Estimates from the Panel Study of Income Dynamics (PSID) indicate that African-American men are one-third as likely to be self-employed as white men in the United States. The large discrepancy is due to a black transition rate into self- employment which is approximately one-half the white rate and a black transition rate out of self-employment which is twice the white rate. Using a nonstandard decomposition technique, I find that racial differences in asset levels, probabilities of having self-employed fathers, and past self-employment experience explain part of the large black/white gap in the entry rate. Of these and other potential factors, only racial difference in past self-employment experience explains a large part of the exit rate gap. Finally, these factors which contribute to the racial gaps in the transition rates are important causes of the black/white gap in the self-employment rate.

JEL Classification: J23, J15