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

Market-Based Disparities in Business Formation and Business Owner Earnings
c. Conclusions
As was the case for wage and salary earners, minority and female entrepreneurs earn
substantially and significantly less from their efforts than similarly situated nonminority male
entrepreneurs. The situation, in general, differs little in the City of Cleveland Market Area from
what is observed for the nation as a whole. These disparities are consistent with the presence of
discrimination in commercial markets that adversely affects M/WBEs. Other things equal, if
minorities and women are prevented by discrimination from earning remuneration from their
entrepreneurial efforts comparable to that of similarly situated nonminority males, then capital
reinvestment and growth rates may slow, business failure rates may increase and, as
demonstrated in the next section, business formation rates may decrease. Combined, these
phenomena result in lower M/WBE availability levels than would be observed in a race- and
gender-neutral market area. As this chapter demonstrates, discrimination depresses business
owner earnings for women and minority entrepreneurs. Business owner earnings, however, are
often directly related to whether an owner has the capital to reinvest (firm size), how long a firm
survives (firm age), and how much money a firm takes in (individual firm revenues). These
observations illustrate why employment size, years in business, and individual firm revenues are
especially inappropriate factors to consider in any sort of “capacity” type analysis.
C. Race and Gender Disparities in Business Formation
As discussed in the two previous sections, discrimination that affects the wages and
entrepreneurial earnings of minorities and women will ultimately affect the number of businesses
formed by these groups as well. In this section of this chapter, we turn to the analysis of race and
gender disparities in business formation. 241 We compare self-employment rates by race and
gender to determine whether minorities or women are as likely to enter the ranks of
entrepreneurs as are similarly-situated nonminority males. We find that in most cases they are
not as likely to do so, and that minority and female business formation rates in most cases would
likely be substantially and significantly higher if markets operated in a race- and gender-neutral
manner.
Discrimination in the labor market, symptoms of which are evidenced in Section B.3 above,
might cause wage and salary workers to turn to self-employment in hopes of encountering less
discrimination from customers and suppliers than from employers and co-workers. Other things
equal, and assuming minority and female workers did not believe that discrimination pervaded
commercial markets as well, this would lead minority and female business formation rates to be
higher than would otherwise be expected.
On the other hand, discrimination in the labor market prevents minorities and women from
acquiring the very skills, experience, and positions that are often observed among those who
leave the ranks of the wage and salary earners to start their own businesses. Many construction
contracting concerns have been formed by individuals who were once employed as foremen for
other contractors, fewer by those who were employed instead as laborers. Similarly,
discrimination in commercial capital and credit markets, as well as asset and wealth distribution,
241 We use the phrases “business formation rates” and “self-employment rates” interchangeably in this Study.
NERA Economic Consulting 163