Entrepreneurship and the Racial Wealth Gap: The Impact of Entrepreneurial Success or Failure on the Wealth Mobility of Black and White Families

Abstract

AbstractResearch 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.