Black Self-Employment Rose During the Recession

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.

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Scott Shane Scott Shane is A. Malachi Mixon III, Professor of Entrepreneurial Studies at Case Western Reserve University. He is the author of nine books, including Fool's Gold: The Truth Behind Angel Investing in America ; Illusions of Entrepreneurship: and The Costly Myths that Entrepreneurs, Investors, and Policy Makers Live By.

11 Reactions
  1. Professor Shane cites very provocative statistics in his most recent post. Congratulations are due to all who exploit a macro-economic ebb. Curious questions come to mind as I read his article. To what extent is limited capital formation influencing the cross-section of “personal-services” opportunities vis-à-vis construction, manufacturing and finance? Further, to what extent are barriers-of-entry influencing the portfolio of opportunities facing these gutsy black entrepreneurs?

    I suspect (know) that education, experience, and street-savvy is the grease necessary to whip inertia and successfully launch any business model. I am also very glad to read that American Blacks are participating and harvesting the American dream.

  2. I was surprised that BLS did not include education trends and expect there is a correlation. Even if not directly related, higher education comes with a higher entry into the job market as well as breeding confidence.

    Taking advantage of the opportunities offered by a free enterprise system perpetuates the system. I love it!

  3. It’s good to see self-employment going up for any large group. Great analysis and congratulations to all of the newly self-employed out there!

  4. Thanks for sharing this, Scott. It has powerful implications for business, especially small business. Besides what BLS reports, you have separate findings from the Census Bureau and the Kauffman Foundation which together are coming to the same conclusion — including for Latino and Asian American self-employment.

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  7. Um, the biggest reason for the increase in black self employment is because companies are NOT HIRING THEM! Right now, in the U.S., there is 8% of caucasions who are unemployed compared to 16% of unemployed blacks. that is DOUBLE the rate!! There are a lot of equal opportunity employment policies that are not being honored, that is for sure, I will admit that there are low numbers of African-Americans who are seeking higher education (mostly black males) HOWEVER, there has been an increase of black women who have furthered their education or currenlty seeking a trade or certificate. I myself is bi-racial (half black/half white) and have resulted into being self-employed because I had no other choice, and to be quite honest, it was the RIGHT decision. If I never would have become self employed I would be working one of these crappy jobs for $8/hr, despite the fact that I have a 4 year bachelors degree in Business.Self employment is the way to go. In 2-5 years, almost everyone will be self employed,

  8. First and foremost, I would like to give deep thinker a round of applause for your analysis on the discussion at hand regarding the increase in self-employment for blacks. Congratulations on starting your business and I genuinely hope that it prospers for you.

    Alot of companies ARE NOT honoring the equal employment opportunity policies set in place within there company. These policies are posted just to look good in print but often time have very little value. The labor market is tight right now and regardless of the educational level one has, there are people from every background that is struggling and this is most companies leverage right now.

    I know for a fact that there are alot of educated blacks out there with 4 year degrees and more that are still struggling to find a good paying job. When these people do find a job, often times, it has very little to do with their field of study and pay an insulting wage of $10 to $12 per hour. Really employers? Really? How do they expect anyone to survive on a mediocre wage such as that after studying hard for years to earn a degree.

    From my observation in the labor market, blacks tend to get treated worst than any other race of people. I do not blame this upward trend in self-employment. If these companies are not willing to give them a fair opportunity then why not pursue their own opportunity? Hats off to all new entreprenuers out there and I want to close by saying go out and conquer.

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