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

Market-Based Disparities in Business Formation and Business Owner Earnings
prevents minorities and women from acquiring the financial credit and capital that are so often
prerequisites to starting or expanding a business. Other things being equal, these phenomena
would lead minority and female business formation rates to be lower than otherwise would be
expected.
Further, discrimination by commercial customers and suppliers against M/WBEs, symptoms of
which are evidenced in Section B.4 above and elsewhere, operates to increase input prices and
lower output prices for M/WBEs. This discrimination leads to higher rates of failure for some
minority- and women-owned firms, lower rates of profitability and growth for others, and
prevents some minorities and women from ever starting businesses at all. 242 All of these
phenomena, other things equal, would contribute directly to relatively lower observed rates of
minority and female self-employment.
1. Methods and Data
To see if minorities or nonminority women are as likely to be business owners as are comparable
nonminority males, we use a statistical technique known as Probit regression. Probit regression is
used to determine the relationship between a categorical variable—one that can be characterized
in terms of a “yes” or a “no” response as opposed to a continuous number—and a set of
characteristics that are related to the outcome of the categorical variable. Probit regression
produces estimates of the extent to which each characteristic is positively or negatively related to
the likelihood that the categorical variable will be a yes or no. For example, Probit regression is
used by statisticians to estimate the likelihood that an individual participates in the labor force,
retires this year, or contracts a particular disease—these are all variables that can be categorized
by a response of “yes” (for example, she is in the labor force) or “no” (for example, she is not in
the labor force)—and the extent to which certain factors are positively or negatively related to
the likelihood (for example, the more education she has, the more likely that she is in the labor
force). Probit regression is one of several techniques that can be used to examine qualitative
outcomes. Generally, other techniques such as Logit regression yield similar results. 243 In the
present case, Probit regression is used to examine the relationship between the choice to own a
business (yes or no) and the other demographic and socioeconomic characteristics in our basic
model. The underlying data for this section is once again the 2006–2010 ACS PUMS.
2. Findings: Race and Gender Disparities in Business Formation
As a point of reference for what follows, Tables 5.7 and 5.8 provide a summary of business
ownership rates in 2006–2010 by race and gender. A striking feature of both tables is how much
higher, in general, business ownership rates are for nonminority males than for other groups.
Table 5.7, for example, shows a 6.79 percentage point difference between the overall selfemployment
rate of African Americans and nonminority males in the CLEVMA (11.18 – 4.39 =
10.78). As shown in the rightmost column, this 6.79 percentage point gap translates into an
242 See also the materials cited at fn. 227 supra.
243 For a detailed discussion, see G.S. Maddala (1983). Probit analysis is performed here using the “dprobit”
command in the statistical program STATA.
NERA Economic Consulting 164