Poster Paper:
Redefining Risk: Racial Disparities in Entrepreneurship and Financial Wellbeing
*Names in bold indicate Presenter
Entrepreneurship is often seen as a key driver of economic mobility. Yet, evidence suggests that Black business owners may not be realizing the same benefits of entrepreneurship as their white counterparts. Although Black individuals and immigrants are almost twice as likely to start a business as whites and native-born Americans, (Kollinger & Minniti, 2006; Fairlie, 2012), people of color are less likely to remain self-employed than whites (Ahn, 2011). This study aims to explore differences in the career paths of entrepreneurs of color and identify implications on America’s racial wealth gap.
Methods:
The study uses a mixed methods approach. The quantitative portion analyses data from the 1999 to 2015 waves of the Panel Survey of Income Dynamics (PSID) and compares Black and white entrepreneurs. Separate analyses were run for those who started businesses in 2001 and 2005 to account for macroeconomic trends. Regression models were used to identify factors associated with continued ownership. Qualitative data comes from four focus groups of 24 Black and/or Hispanic/Latinx entrepreneurs, including current and previous business owners. Participants were asked about macroeconomic, sector-specific, and policy-related factors that affected their ability to own, grow, and sustain a business. Questions also focused on the effects of racial discrimination and bias, knowledge pools, and financial capital on business success.
Results:
Quantitative analyses find that owning a business has a positive impact on net-wealth as long as the business continues but can have a negative impact on net-wealth if the business ends. We also find that Black entrepreneurs are more likely to see their business end sooner than their white counterparts. For example, only 31% of Black entrepreneurs who started a business in 2005 still owned as of 2007, compared to 50% of whites. Regression analyses confirm that racial disparities are not fully explained by differences in income, education, or assets, but may in part be exacerbated by macroeconomic declines. Exploratory qualitative findings highlight a range of barriers at different stages of business ownership that make it difficult for many entrepreneurs of color to achieve financial wellbeing. These include racial discrimination and bias, lack of access to affordable financial products, and difficulty determining when to close a business before losing too much wealth. Most respondents did not find business ownership to be a straightforward path to economic stability or mobility, and expressed a desire for ongoing educational opportunities and mentorship.
Implications:
Business ownership has a high failure rate in general, but higher failure rates for entrepreneurs of color suggest a need for more effective resources and an updated assessment of who bears the most risk in community wealth-building processes. While many small business services focus on the start-up phase, our data suggest a need for supports that evolve with business owners’ needs through the life course of the enterprise. There is also a need for affordable, small-dollar loans and credit products, packaged with culturally responsive financial advising.
