Abstract
Research has repeatedly argued that increasing the rate at which Black people start businesses could reduce the racial wealth gap between Black and white families, but increasing the rate of Black entrepreneurship may actually exacerbate the racial wealth gap, due to the economic cost associated with business closure. Using longitudinal data from the Panel Study of Income Dynamics (PSID), we find that, as past work suggests, Black-owned businesses are less likely to remain open 4 years later, compared to white-owned businesses, and that, due to this disparity, Black business owners are more likely to experience downward economic mobility and less likely to experience upward mobility, compared to their white counterparts. These results suggest that improving the rate at which Black entrepreneurs succeed, rather than increasing the rate at which Black people become entrepreneurs, should be the target of efforts to leverage business ownership to reduce the racial wealth gap.
Highlights
Research has repeatedly argued that increasing the rate at which Black people start businesses could reduce the racial wealth gap between Black and white families (Boston, 1999; Bradford, 2014; Butler, 1991)
We show that Black and white entrepreneurs have a similar likelihood of experiencing upward economic mobility when their businesses succeed, and similar likelihoods of experiencing downward mobility when their businesses fail
For many entrepreneurs, an exogenous shock to wealth may have led to business failure, as opposed to business failure leading to a decline in wealth
Summary
Research has repeatedly argued that increasing the rate at which Black people start businesses could reduce the racial wealth gap between Black and white families (Boston, 1999; Bradford, 2014; Butler, 1991). As predicted by these two findings, Black business owners in a given year are more likely to experience downward economic mobility over the 4 years, and less likely to experience upward mobility, compared to their white counterparts. In light of these results, improving the rate at which Black entrepreneurs succeed, rather than increasing the rate at which Black people become entrepreneurs, should be the primary focus of efforts to leverage business ownership to reduce the racial wealth gap
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