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 entrepreneurs as white men. The large discrepancy is due to a black transition rate into self-employed business ownership that is approximately one half the white rate and a black transition rate out of self-employed business ownership that is twice the white rate. Using a new variation of the Blinder-Oaxaca decomposition technique, I find that racial differences in asset levels and probabilities of having self-employed fathers explain a large part of the black/white gap in the entry rate, but almost none of the gap in the exit rate.

Keywords: entrepreneurship, inequality, race, minorities, business ownership, labor

JEL Classification: L26, J15