The State of Minority- and Women- Owned ... - Cleveland.com

Market-Based Disparities in Business Formation and Business Owner Earnings
and Davila, 2006; Robles and Cordero-Gúzman, 2007), 229 immigration policy (Borjas and
Bronars, 1989), and retirement policies (Quinn, 1980). Studies by Long (1982), Blau (1987), and
Schuetze (1998), have considered the role of taxes. 230 A number of other studies have also
considered the cyclical aspects of self-employment and in particular how movements of selfemployment
are correlated with movements in unemployment. Meager (1992) provides a useful
summary of much of this work. 231
Blanchflower, Oswald and Stutzer (2001) found that there is a strikingly large latent desire to
own a business. There exists frustrated entrepreneurship on a huge scale in the U.S. and other
Organization for Economic Co-operation and Development (OECD) countries. 232 In the U.S., 7
out of 10 people say they would prefer to be self-employed. This compares to an actual
proportion of self-employed people in 2001 of 7.3 percent of the civilian labor force, which also
shows that the proportion of the labor force that is self-employed has declined steadily since
1990 following a small increase in the rate from 1980 to 1990. This raises an important question.
Why do so few individuals in the U.S. and OECD countries manage to translate their preferences
into action? Lack of start-up capital is one likely explanation. This factor is commonly cited by
small-business managers themselves (Blanchflower and Oswald, 1998). There is also
econometric evidence that confirms this barrier. Holding other influences constant, people who
229 Fairlie and Meyer (1998) found that immigration had no statistically significant impact at all on African
American self-employment. In a subsequent paper, Fairlie and Meyer (2003) found that self-employed
immigrants did displace self-employed native non-African Americans. They found that immigration has a large
negative effect on the probability of self-employment among native non-African Americans, although,
surprisingly, they found that immigrants increase native self-employment earnings.
230 In an interesting study pooling individual level data for the U.S. and Canada from the Current Population Survey
and the Survey of Consumer Finances, respectively, Schuetze (1998) finds that increases in income taxes have
large and positive effects on the male self-employment rate. He found that a 30 percent increase in taxes
generated a rise of 0.9 to 2.0 percentage points in the male self-employment rate in Canada compared with a rise
of 0.8 to 1.4 percentage points in the U.S. over 1994 levels.
231 Evans and Leighton (1989) found that nonminority men who are unemployed are nearly twice as likely as wage
workers to enter self-employment. Bogenhold and Staber (1991) also find evidence that unemployment and selfemployment
are positively correlated. Blanchflower and Oswald (1990) found a strong negative relationship
between regional unemployment and self-employment for the period 1983-1989 in the U.K. using a pooled
cross-section time-series data set. Blanchflower and Oswald (1998) confirmed this result, finding that the log of
the county unemployment rate entered negatively in a cross-section self-employment model for young people
age 23 in 1981 and for the same people aged 33 in 1991. Taylor (1996) confirmed this result using data from the
British Household Panel Study of 1991, showing that the probability of being self-employed rises when expected
self-employment earnings increase relative to employee earnings, i.e., when unemployment is low. Acs and
Evans (1994) found evidence from an analysis of a panel of countries that the unemployment rate entered
negatively in a fixed effect and random effects formulation. However, Schuetze (1998) found that for the U.S.
and Canada the elasticity of the male self-employment rate with respect to the unemployment rate was
considerably smaller than found for the effect from taxes discussed above. The elasticity of self-employment
associated with the unemployment rate is about 0.1 in both countries using 1994 figures. A decrease of 5
percentage points in the unemployment rate in the U.S. (about the same decline occurred from 1983-1989) leads
to about a 1 percentage point decrease in self-employment. Blanchflower (2000) found that there is generally a
negative relationship between the self-employment rate and the unemployment rate. It does seem then that there
is some disagreement in the literature on whether high unemployment acts to discourage self-employment
because of the lack of available opportunities or encourage it because of the lack of viable alternatives.
232 The OECD is an international organization of those developed countries that accept the principles of
representative democracy and a free market economy. There are currently 30 full members.
NERA Economic Consulting 148