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Race and Entrepreneurial Success

Race and Entrepreneurial Success: Black-, Asian-, and White-Owned Businesses in the United States

Robert W. Fairlie
Alicia M. Robb
Copyright Date: 2008
Published by: MIT Press
Pages: 256
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  • Book Info
    Race and Entrepreneurial Success
    Book Description:

    Thirteen million people in the United States--roughly one in ten workers--own a business. And yet rates of business ownership among African Americans are much lower and have been so throughout the twentieth century. In addition, and perhaps more importantly, businesses owned by African Americans tend to have lower sales, fewer employees and smaller payrolls, lower profits, and higher closure rates. In contrast, Asian American-owned businesses tend to be more successful. In Race and Entrepreneurial Success, minority entrepreneurship authorities Robert Fairlie and Alicia Robb examine racial disparities in business performance. Drawing on the rarely used, restricted-access Characteristics of Business Owners (CBO) dataset compiled by the U.S. Census Bureau, Fairlie and Robb examine in particular why Asian-owned firms perform well in comparison to white-owned businesses and black-owned firms typically do not. They also explore the broader question of why some entrepreneurs are successful and others are not.. After providing new comprehensive estimates of recent trends in minority business ownership and performance, the authors examine the importance of human capital, financial capital, and family business background in successful business ownership. They find that a high level of startup capital is the most important factor contributing to the success of Asian-owned businesses, and that the lack of startup money for black businesses (attributable to the fact that nearly half of all black families have less than $6,000 in total wealth) contributes to their relative lack of success. In addition, higher education levels among Asian business owners explain much of their success relative to both white- and African American-owned businesses. Finally, Fairlie and Robb find that black entrepreneurs have fewer opportunities than white entrepreneurs to acquire valuable pre-business work experience through working in family businesses.

    eISBN: 978-0-262-27247-6
    Subjects: Business, Sociology

Table of Contents

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  1. Front Matter
    (pp. i-iv)
  2. Table of Contents
    (pp. v-viii)
  3. Preface
    (pp. ix-xii)
  4. 1 Introduction
    (pp. 1-12)

    Racial inequality in education, income, and wealth are well known. Less understood are the large and persistent racial disparities in business ownership and performance in the United States. The lack of attention is surprising, given the magnitude of these racial differences and the importance of business ownership as a way to make a living for many Americans. More than one in ten workers, or 13 million people, in the United States are self-employed business owners. These 13 million business owners hold an amazing 37.4 percent of total U.S. wealth (Bucks, Kennickell, and Moore 2006). Yet only 5.1 percent of African...

  5. 2 Racial Disparities in Business Ownership and Outcomes
    (pp. 13-48)

    In the United States, African Americans and Latinos are less likely to own businesses than whites, and the businesses that they own are less successful on average. In contrast, Asian Americans have similar business-ownership rates as whites, and Asian-owned businesses outperform white-owned businesses for most outcome measures. In this chapter, we lay out the facts about business ownership and performance among minorities.

    We create new estimates of racial patterns of business-ownership rates using the most recently available microdata. Estimates of recent trends in minority business ownership are also generated and discussed. To explore recent trends in minority business outcomes, we...

  6. 3 The Determinants of Small Business Success
    (pp. 49-96)

    In the previous chapter, we reviewed the main findings from the rapidly growing literature on minority business ownership. The findings from this literature indicate that racial differences in access to financial capital, human capital, and parental self-employment contribute to racial disparities in business-ownership rates. A much smaller literature, however, focuses on the related question of why there are such large racial differences in business outcomes, especially using business-level datasets. The lack of research is unfortunate given that racial disparities in many business outcomes are much larger than disparities in business-ownership rates. For example, the average sales of white-owned businesses is...

  7. 4 Why Are African American-Owned Businesses Less Successful?
    (pp. 97-144)

    African Americans are less likely to own businesses than whites, and their businesses are less successful on average than are white-owned businesses. The evidence presented in chapter 2 indicates that black businesses have lower revenues and profits, hire fewer employees, and are more likely to close than white-owned businesses. In most cases, the disparities are large. For example, average sales among black firms are roughly one fourth that of white firms, and black firms hire one third the number of employees on average as white firms. The relative underperformance of black-owned businesses is alarming because of the implications of successful...

  8. 5 Why Are Asian-Owned Businesses More Successful?
    (pp. 145-174)

    In this chapter, we explore potential explanations for the relative success of Asian American-owned businesses in the United States. Asian Americans differ from other minority groups in that they have high rates of business ownership. In the past few years, more than 11 percent of Asian workers in the United States were self-employed business owners. This is comparable to the white rate of business ownership. In addition to having relatively high rates of self-employment, Asians have better business outcomes on average than other racial groups. For example, Asian-owned businesses are 16.9 percent less likely to close, 20.6 percent more likely...

  9. 6 Conclusions and Implications
    (pp. 175-188)

    African Americans are much less likely to own businesses than whites, and their businesses are less successful on average. Only 5.1 percent of black workers are self-employed business owners compared with 11.1 percent of white workers. Although there is some evidence of rising black business ownership rates in the past few years, racial disparities remain large, and a major convergence in business-ownership rates is unlikely in the near future. In fact, even in light of the substantial gains blacks have made in education, earnings, and civil rights during the twentieth century, black self-employment rates remained roughly constant relative to white...

  10. Data Appendix
    (pp. 189-206)
  11. Notes
    (pp. 207-214)
  12. References
    (pp. 215-230)
  13. Index
    (pp. 231-240)