We
examine trends in self-employment among white and black men from
1910 to 1990 using Census and CPS microdata. Self-employment rates
fell over most of the century and then started to rise after 1970.
For white men, we find that the decline was due to declining rates
within industries, but was counterbalanced somewhat by a shift
in employment towards high self-employment industries. Recently,
the increase in self-employment was caused by an end to the within
industry decline and the continuing shift in employment towards
high self-employment industries. We find that the trends in self-employment
average returns do not easily explain the decline in self-employment
from 1950 to 1970, nor the increase from 1970 to 1990. We also
find that changes in tax rates, social security benefits, and
immigration patterns do not explain the recent upturn in self-employment.
For black men, we find that the self-employment rate remained
at a level of roughly one-third the white rate from 1910 to 1990.
The constant gap between the black and the white rates was not
due to blacks being in low self-employment rate industries, but
is consistent with job opportunities outside of self-employment
increasing relative to those in self-employment. However, more
recently the relative earnings of blacks in self-employment rose
more than relative earnings for whites, making the near constancy
of the relative self-employment rates more surprising. We also
find that absent continuing forces holding down black self-employment,
a simple inter-generational model of self-employment suggests
that black and white rates would converge quickly.
Robert W. Fairlie, Department
of Economics, University of California, Santa Cruz
Bruce D. Meyer, Department
of Economics, Northwestern University
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