An Econometric Analysis of Black Entrepreneurship

Abstract

Most economists and other social observers characterize entrepreneurship in terms that make its study very difficult. It is almost impossible to develop a statistical model of entrepreneurship based on traits such as imagination, capacity for innovation, alertness to new opportunities, willingness to bear risks, etc., unless these traits are delineated in some way by the data. As T. W. Shultz (1975) points out, "our knowledge of a person's abilities consists of inferences drawn from her performance. An ability is thus perceived as the competence and efficiency with which particular acts are performed.'" Therefore, the entrepreneur's traits may only be revealed after the fact of choice and thus are unavailable for predictive and policy purposes. In other words, if the entrepreneur is defined by characteristics such as a willingness to bear risk or an alertness to new opportunities, then policymakers can only identify entrepreneurs after they have watched them succeed or fail as entrepreneurs. As a result, they cannot use these traits to predict individual choices or to prescribe policies affecting these choices or their eventual outcomes. In effect, policy makers are left with nothing more than a tautological system--"it is because it is." An alternative approach--the one used here--is to attempt to associate standard demographic variables such as income, education, ethnicity, background, etc., with the choice of entrepreneurical employment, including choice of the type of business. The study defines entrepreneurs as the set of individuals listed on the Survey of Income and Education as "self-employed proprietors" or "self-employed incorporated." These people clearly differ from wage and salary employees in one crucial respect. Employees usually work under employment contracts (either ex