Small Business Economics

, Volume 36, Issue 2, pp 169–186 | Cite as

Racial differences in self-employment exits

  • Taehyun AhnEmail author


Using detailed work history data in the 1979 National Longitudinal Survey of Youth, I investigate the reasons behind the racial gap in self-employment. My analysis of an “age uniform” sample of men, all of whom are observed from age 22 to 40 years, reveals that racial differences in cross-sectional self-employment rates are largely due to the fact that minority workers’ self-employment spells are relatively short-lived. Moreover, I find that minority workers’ relatively high exit rates are driven primarily by transitions to nonemployment. Estimates from a multinomial logit model of self-employment exits suggest that minority workers’ weak attachment to the labor market prior to entering self-employment is an important determinant of their transition from self-employment to nonemployment, while lack of prior industry and self-employment experience contributes to minorities’ transitions to wage employment. When I assign blacks and Hispanics the same (mean) work histories as whites, the predicted black–white gap in the first-year self-employment survival rate decreases by 31% and the Hispanic–white gap decreases by 14%.


Self-employment Entrepreneurship Minority entrepreneurship Work history 

JEL Classifications

J23 J63 L26 M13 



This article contains work from my doctoral dissertation submitted to the Ohio State University. I would like to thank Audrey Light for her guidance and all-aspect supports. I also would like to thank Bruce Weinberg, Joe Kaboski, Maria Minniti, and two anonymous referees for providing valuable comments and suggestions. All remaining errors are mine.


  1. Ahn, T. (2007). Risk, liquidity constraints, and self-employment. Ohio State University (unpublished manuscript).Google Scholar
  2. Bates, T. (1990). Entrepreneur human capital input and small business longevity. The Review of Economics and Statistics, 72(4), 551–559. doi: 10.2307/2109594.CrossRefGoogle Scholar
  3. Blanchflower, D., & Oswald, A. (1998). What makes an entrepreneur? Journal of Labor Economics, 16(1), 26–60. doi: 10.1086/209881.CrossRefGoogle Scholar
  4. Bruce, D. (1999). Do husbands matter? Married women entering self-employment. Small Business Economics, 13(4), 317–329. doi: 10.1023/A:1008179214572.CrossRefGoogle Scholar
  5. D’Amico, R., & Maxwell, N. (1994). The impact of post-school joblessness on male black-white wage differentials. Industrial Relations, 33(2), 184–205. doi: 10.1111/j.1468-232X.1994.tb00335.x.Google Scholar
  6. Dunn, T., & Holtz-Eakin, D. (2000). Financial capital, human capital, and the transition to self-employment: Evidence from intergenerational links. Journal of Labor Economics, 18(2), 282–305. doi: 10.1086/209959.CrossRefGoogle Scholar
  7. Evans, D., & Jovanovic, B. (1989). An estimated model of entrepreneurial choice under liquidity constraints. The Journal of Political Economy, 97(4), 808–827. doi: 10.1086/261629.CrossRefGoogle Scholar
  8. Fairlie, R. (1999). The absence of the African-American owned business: An analysis of the dynamics of self-employment. Journal of Labor Economics, 17(1), 80–108. doi: 10.1086/209914.CrossRefGoogle Scholar
  9. Fairlie, R. (2002). Drug dealing and legitimate self-employment. Journal of Labor Economics, 20(3), 538–567. doi: 10.1086/339610.CrossRefGoogle Scholar
  10. Fairlie, R. (2004). Does business ownership provide a source of upward mobility for blacks and Hispanics? In D. Holtz-Eakin & H. Rosen (Eds.), Public policy and the economics of entrepreneurship. Cambridge, MA: MIT Press.Google Scholar
  11. Fairlie, R. (2006). Entrepreneurship among disadvantaged groups: An analysis of the dynamics of self-employment by gender, race, and education. In S. C. Parker, Z. J. Acs, & D. R. Audretsch (Eds.), Handbook of entreprenurship. Kluwer Academic Publishers (forthcoming).Google Scholar
  12. Fairlie, R., & Robb, A. (2007). Why are black-owned businesses less successful than white-owned businesses? Journal of Labor Economics, 25(2), 289–323. doi: 10.1086/510763.CrossRefGoogle Scholar
  13. Fairlie, R., & Sundstrom, W. (1999). The emergence, persistence, and recent widening of the racial unemployment gap. Industrial and Labor Relations Review, 52(2), 252–270. doi: 10.2307/2525165.CrossRefGoogle Scholar
  14. Gardecki, R., & Neumark, D. (1998). Order from chaos? The effects of early labor market experiences on adult labor market outcomes. Industrial and Labor Relations Review, 51(2), 299–322. doi: 10.2307/2525220.CrossRefGoogle Scholar
  15. Hipple, S. (2004). Self-employment in the United States: An update. Monthly Labor Review, 127(7), 13–23.Google Scholar
  16. Holtz-Eakin, D., Joulafaian, D., & Rosen, H. (1994). Sticking it out: Entrepreneurial survival and liquidity constraints. The Journal of Political Economy, 102(1), 53–75. doi: 10.1086/261921.CrossRefGoogle Scholar
  17. Hout, M., & Rosen, H. (2000). Self-employment, family background, and race. The Journal of Human Resources, 35(1), 95–104.Google Scholar
  18. Hundley, G. (2000). Male/female earnings differences in self-employment: The effects of marriage, children, and the household division of labor. Industrial and Labor Relations Review, 54(1), 95–114. doi: 10.2307/2696034.CrossRefGoogle Scholar
  19. Kihlstrom, R., & Laffont, J. (1979). A general equilibrium entrepreneurial theory of firm formation based on risk aversion. The Journal of Political Economy, 87(4), 719–748. doi: 10.1086/260790.CrossRefGoogle Scholar
  20. Klerman, J., & Karoly, L. (1994). Young men and the transition to stable employment. Monthly Labor Review, 117(8), 31–48.Google Scholar
  21. Köllinger, P., & Minniti, M. (2006). Not for lack of trying: American entrepreneurship in black and white. Small Business Economics, 27(1), 59–79. doi: 10.1007/s11187-006-0019-6.CrossRefGoogle Scholar
  22. Lofstrom, M., & Wang, C. (2006). Hispanic self-employment: A dynamic analysis of business ownership. IZA Discussion Paper No. 2101, Institute for the Study of Labor, Bonn, Germany.Google Scholar
  23. Neumark, D. (2002). Youth labor market in the United States: Shopping around vs. staying put. The Review of Economics and Statistics, 84(3), 462–482. doi: 10.1162/003465302320259475.CrossRefGoogle Scholar
  24. Royalty, A. (1998). Job-to-job and job-to-nonemployment by gender and education level. Journal of Labor Economics, 16(2), 392–443. doi: 10.1086/209894.CrossRefGoogle Scholar
  25. Stratton, L. (1993). Racial differences in men’s unemployment. Industrial and Labor Relations Review, 46(3), 451–463. doi: 10.2307/2524546.CrossRefGoogle Scholar
  26. Taniguchi, H. (2002). Determinants of women’s entry into self-employment. Social Science Quarterly, 83(3), 875–893. doi: 10.1111/1540-6237.00119.CrossRefGoogle Scholar
  27. Taylor, M. (1999). Survival of the fittest? An analysis of self-employment duration in Britain. The Economic Journal, 109(454), C140–C155. doi: 10.1111/1468-0297.00422.CrossRefGoogle Scholar
  28. Van Praag, C. (2003). Business survival and success of young business owners. Small Business Economics, 21(1), 1–17. doi: 10.1023/A:1024453200297.CrossRefGoogle Scholar

Copyright information

© Springer Science+Business Media, LLC. 2009

Authors and Affiliations

  1. 1.Korea Labor InstituteSeoulKorea

Personalised recommendations