The Color of Entrepreneurship: Why the Racial Gap among Firms Costs the U.S. Billions

Although the number of minority-owned businesses is increasing dramatically, America is currently forgoing an estimated 1.1 million businesses owned by people of color because of past and present discrimination in American society. These missing businesses could produce an estimated 9 million more jobs and boost our national income by $300 billion. Thus, expanding entrepreneurship among people of color is an essential strategy for moving the country toward full employment for all.


The Color of Entrepreneurship: Why the Racial Gap among Firms Costs the U.S. Billions

by Algernon Austin

Businesses owned by people of color are playing an important part in restoring the health of the American economy after the Great Recession (December 2007 through June 2009). Between 2007 and 2012, privately held minority businesses contributed 1.3 million jobs to the American economy. In a more inclusive society, one where there was truly equal opportunity for all, there would be more minority-owned businesses contributing even more to America’s recovery.

Although the number of minority-owned businesses is increasing dramatically, America is currently forgoing an estimated 1.1 million businesses owned by people of color because of past and present discrimination in American society. These missing businesses could produce an estimated 9 million more jobs and boost our national income by $300 billion. Thus, expanding entrepreneurship among people of color is an essential strategy for moving the country toward full employment for all.

This report documents the changes in the economic status of businesses owned by people of color between 2007 and 2012. Although most privately held businesses do not have employees, this analysis focuses mainly on the businesses that do have paid employees because of their greater economic impact. Data for the analysis was culled from the U.S. Census Bureau’s Survey of Business Owners (SBO), which is conducted every five years. The two most recent surveys are from 2012 and 2007. In the SBO data, a racial, ethnic (Hispanic), or gender group is defined as owning a firm if it owns more than 50 percent of the equity, interest, or stock of the business. Hispanics can be of any race, and the Survey of Business Owners includes them within their racial group when the data is presented by gender (e.g., White Hispanic women’s firms are in the racial category White women’s firms). The analysis excludes publicly held firms—firms that are traded on a U.S. stock exchange—because those firms are not classifiable by race, ethnicity, or gender.1 Public firms are generally larger than private firms.

Key findings of this report are:

Nearly all of the entrepreneur-of-color groups experienced significant growth in the number of their firms from 2007 to 2012. Asian American women-owned firms had the strongest numerical growth rate, 37.6 percent.

African American men were the only group to have a decline in the number of their businesses in the period from 2007 through 2012.

Six of the 10 groups of business owners analyzed experienced a decline in average sales from 2007 to 2012. Firms owned by Black women had the largest decline in average annual sales, 30 percent, followed by firms owned by American Indian women, 22.2 percent. The strongest growth in average sales was posted by firms owned by Latino men. The average sales of these firms grew 7.2 percent.

In 2012, all of the firms owned by groups of male business owners had higher average sales than all of the firms owned by groups of female business owners. White men’s firms had the highest average sales among the male firms, and Black men’s firms had the lowest. Among the female firms, White women’s firms had the highest average sales and Black women’s firms had the lowest.

The Great Recession delivered a significant blow to White male business owners in the construction industry. In 2007, White men owned 70.7 percent of all privately held construction firms. In 2012, with the bursting of the housing bubble, the number of construction firms owned by White men had declined by 61,000 (11.4 percent) and the number of employees in these firms had declined by one million (21.4 percent).

Looking only at the groups with businesses that added jobs between 2007 and 2012, non-White business owners added 72.3 percent of the total.

If the number of people-of-color firms were proportional to their distribution in the labor force, people of color would own 1.1 million more businesses with employees. These firms would add about 9 million jobs and about $300 billion in workers’ income to the U.S. economy.
Read the entire article here: http://globalpolicysolutions.org/report/color-entrepreneurship-racial-gap-among-firms-costs-u-s-billions/

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