Inequality in the Earnings of Self-Employed African and Asian Americans

Abstract

Self-employed African Americans in the United States earn much less than do their Asian counterparts. This study examines the sources of this earnings inequality. Explanatory variables include the human capital and family relations of individuals and the demographic, ecological, and labor-market characteristics of the communities (SMSAs) in which individuals reside. Results indicate that self-employed African Americans have lower earnings because they tend to have lower levels of human capital than do self-employed Asians. The results also show that, at the community level, increases in the relative size of the African American population have a positive effect on the earnings of self-employed African Americans, whereas increases in the relative size of the Asian population have a negative effect on the earnings of self-employed Asians. This finding suggests that increases in relative group size enlarge the entrepreneurial niches of African Americans but inhibit the ability of Asians to exploit their entrepreneurial niches.