Residential segregation influences on the likelihood of ethnic self-employment.(Report)

Geographic and environmental influences on economic action have a long history in managerial research. This paper develops and estimates a model of the potential of a broad set of U.S. racial minority groups to enter self-employment based on individual-level, household-level, and metropolitan area-level factors. The model allows for an analysis of two distinct residential segregation processes on self-employment likelihood. Results indicate that clustering by race has group-specific influences, increasing the likelihood of self- employment for some groups and diminishing for others. Higher levels of racial exposure raise the likelihood of entrepreneurial careers for all groups, but especially for Blacks.

Introduction

Increasing self-employment rates among ethnic and racial minority groups is a topic of growing scholarly and practical interest. Over the last 15 years, U.S. economic census data have shown rapid rates of growth in numbers of firms and aggregate revenues for minority-owned businesses. Further, these rates far outstrip those of majority- owned firms (e.g., White-owned businesses). Analysis of the most recently released economic census data show that, in aggregate, closely held businesses had a 3.5% compound annual growth rate (CAGR) in terms of number of businesses and 9.2% in aggregate revenues in the 15 years between 1987 and 2002 (these data exclude publicly held corporations). Minority-owned firms grew at substantially faster rates, experiencing 7.8% (CAGR) in terms of number of firms and 14.4% in aggregate revenues (see Bergman & Tolbert, 2005, for statistics on firms by racial or ethnic group of owners). These data also indicate that by 2002, 18% of all closely held firms were minority-owned, nearly doubling representation from approximately 9.8% in 1987.

There is a sizable and rich literature on minority-owned firms (e.g., Fairlie, 2004; Fairlie & Meyer, 1996; Portes & Sensebrenner, 1993; Waldinger, Aldrich, & Ward, 1990) and considerable recent interest in understanding these firms' unique challenges among management scholars (e.g., Chrisman, Chua & Steier, 2002; Greene & Butler, 1996; Walstad & Kourilsky, 1998). One fruitful arena has been studies that examine how differences in individual-level, household-level, and metropolitan area-level factors contribute to differences in the likelihood of being self-employed across groups (see Fairchild, 2008, and Fairlie & Meyer for reviews of influential variables). A relatively consistent finding across these studies is that minority groups differ considerably in their propensity to become self-employed and that there are regional and national differences within racial groups.

Building on this body of research, this paper examines whether an environmental factor--racial and ethnic segregation--influences the propensity of an individual to be self-employed, and, thus, posits that the degree of spatial clustering by race may account for differences across groups and cities. Most studies show that American Blacks experience higher rates of segregation than other minority groups, and segregation rates within a race differ considerably across regions (Cutler & Glaeser, 1997; Cutler, Glaeser, & Vigdor, 1999; Massey & Denton, 1993). The influence of segregation processes on self-employment is a less-understood environmental factor. The aim of the present analysis is to add to our knowledge of how minorities become self-employed by examining whether segregation influences self-employment likelihood differentially across actors within an area (e.g., Asians, Blacks, and Hispanics in Milwaukee), and within racial groups across areas (e.g., Blacks living in Milwaukee, Chicago, and Los Angeles).

More specifically, this paper examines the impact of two residential segregation processes (relative clustering and exposure) measured at the metropolitan area level on the likelihood of U.S. Asians, Blacks, and Hispanics to be self-employed workers. Increasing our understanding of the linkage between two well-recognized features of American economic and social life are partial motivations for the present study. First, ethnic and racial groups vary in their propensity to be self-employed, and Blacks have historically shown the least likelihood. Second, rates of segregation differ considerably by race, with Blacks experiencing higher rates than any other group (Iceland, Weinberg, & Steinmetz, 2002). A study of the influence of these differences may lend insights into reasons for regional and racial variation in self-employment likelihood.

While the analysis in this study focuses on the U.S. context, segregation of ethnic and racial minorities has been documented in a number of developed economies, including Canada (Li, 1993; Owusu, 1999), European nations (Aldrich, Cater, Jones, & McEvoy, 1981; Basu & Goswami, 1999; Huttman, Blau, & Saltman, 1991), Southeast Asia (Dick & Rimmer, 1998), and Australia (Johnston, 2001). Since race is a social construction, the mode, drivers, and prevalence of segregation (e.g., racial, ethnic, religious, language groups, etc.) differs by context (Musterd, 2005). For example, in metropolitan areas of the United States, Blacks experience higher rates of segregation from Whites than South Asians (Massey & Denton, 1993), while in British cities the opposite is true (Peach, 1996). In some contexts segregation is an influence of self-selection processes, while in others it results from state-sponsored and legitimated restrictions on where individuals may reside (Huttman et al.). In the United States, segregation results from a combination of legal and social factors over many years involving racial groups of considerable size (see Massey & Denton for a comprehensive review of segregation in the United States). The findings of this analysis may not apply to similarly defined racial groups found in settings outside of the United States, but the general hypothesis that spatial segregation of salient groups influences entrepreneurial action likely does apply.