Most of the discussion of what’s happened with self-employment during the recession has focused on overall trends. “Has the number of self-employed people gone up or down as a result of the downturn” has been the typical query.
While global patterns are important, different groups – men and women, immigrants and non-immigrants, people of different ages and races – don’t all show the same trends. In particular, recent data from the Bureau of Labor Statistics (BLS) indicates that the recession has not affected self-employment activity the same way across different races.
From the fourth quarter of 2007 through fourth quarter of 2009, the total number of non-agricultural self-employed people fell. But the number of self-employed Blacks increased 5.7 percent. In contrast, the number of self-employed Whites decreased 3.4 percent, self-employment among Asians decreased 10.5 percent, and self-employment among Latinos remained flat.
If we measure from the third quarter of 2007 through the third quarter of 2009, the total number of non-agricultural self-employed also fell. This decline was seen among Latinos and Whites, with the number of Asian self-employed remaining flat. But again, the number of self-employed Blacks increased.
Why has the recession affected self-employment rates so differently for Blacks? No one knows for sure. The research hasn’t been done yet so we can only speculate.
One possible explanation is that the patterns merely reflect pre-recession trends. In the years before the recession, Black self employment had been growing much faster than White self-employment. Though he measures self-employment differently from the BLS data described above, analysis by Professor Rob Fairlie at the University of California at Santa Cruz shows that between 1990 and 2006 the number of Black self-employed increased 58 percent, while the number of White self-employed only increased 6 percent.
Moreover, the 2008 U.S. Global Entrepreneurship Monitor Report shows that Blacks “have higher levels of start-up activities than whites (13.9% vs. 8.4%) while having significantly lower rates of established ventures (8.1% vs. 1.8%).” Perhaps the strong growth trend in Black self-employment resulted in increases during a period when other races experienced declines.
Another explanation might be differences in the the prospects of industries in which different races tend to be self-employed. Historically, Blacks have been more likely than Whites to be self-employed in personal services and have been less likely than Whites to be self-employed in construction, manufacturing, and finance. The recession’s effects were much worse in the goods sector, especially manufacturing and construction, than in the service sector. The differences in the industry distribution of self-employment across racial groups might account for the increase in self employment among Blacks and the decline among Whites.
Alternatively these patterns could be the result of how the labor market treats different racial groups. As Rob Fairlie of U.C. Santa Cruz speculates, “With fewer opportunities for wage and salary jobs, minorities may be increasingly turning to self-employment.” Implicit in that statement is the view that when employment gets tight, job losses fall harder on Blacks than on others, leading them toward self-employment at a faster rate.
We don’t know which of these or any other explanations account for why Black self-employment bucked the overall downward trend during the recession. But the numbers suggest that the recession affected self-employment differently among racial groups.