Antecedents of Ethnic Minority Entrepreneurship in New Zealand: An Intergroup Comparison

This paper traces the antecedents of entrepreneurship across ethnic minority groups as reflected in their different rates of business formation in New Zealand, an ethnically diverse nation. The study contrasts the experiences of the Dutch, Chinese, Indian, and Pacific Peoples, groups who have historically exhibited different levels of entrepreneurship. A grounded theory approach led to a model with four linked embedding constructs—migration, settlement, identity, and business—sufficient to interpret longstanding intergroup differences in business formation rates. The findings give new insight into the nature of ethnic minority embedding and an original substantive theory of the antecedents of ethnic minority entrepreneurship.     

Racial differences in self-employment exits

Using detailed work history data in the 1979 National Longitudinal Survey of Youth, I investigate the reasons behind the racial gap in self-employment. My analysis of an “age uniform” sample of men, all of whom are observed from age 22 to 40 years, reveals that racial differences in cross-sectional self-employment rates are largely due to the fact that minority workers’ self-employment spells are relatively short-lived. Moreover, I find that minority workers’ relatively high exit rates are driven primarily by transitions to nonemployment. Estimates from a multinomial logit model of self-employment exits suggest that minority workers’ weak attachment to the labor market prior to entering self-employment is an important determinant of their transition from self-employment to nonemployment, while lack of prior industry and self-employment experience contributes to minorities’ transitions to wage employment. When I assign blacks and Hispanics the same (mean) work histories as whites, the predicted black–white gap in the first-year self-employment survival rate decreases by 31% and the Hispanic–white gap decreases by 14%.     

Recent Trends in Ethnic and Racial Business Ownership

Using Current Population Survey (CPS) microdata, I examine trends and the causes of the trends from 1979 to 1998 in business ownership among several ethnic/racial groups in the United States. I find rapid growth rates for the number of self-employed blacks, Hispanics, Asians and Native Americans relative to whites over the past decade or two. I find that the rapid growth rates were primarily due to expansions in the labor force for these groups. With the exception of female rates in the 1980s, trends in business ownership rates were fairly flat over the past two decades. There were, however, important differences across groups in changes in self-employment rates over the past decade or two. I use a dynamic decomposition technique to explore the causes of these differential trends and find some interesting patterns. For example, I find that increasing levels of education and relative declines in the age distribution of the workforce for some minority groups contributed to increasing racial gaps in self-employment.     

Paths of evolution for the Chinese migrant entrepreneurship: a multiple case analysis in Italy

Chinese diaspora is one of the most important areas in the field of immigrant entrepreneurship and the Chinese case is, for absolute numbers, entrepreneurship rates and scientific attention, one of the most significant phenomena in the world and in Italy. While much of the literature on the topic focuses on ethnic networks and social ties, there is a lack of studies that acknowledge the role of business networks in the later growth of migrant entrepreneurship, when the importance of social ties within the ethnic community diminishes. This paper tries to answer the following research question: Which is the role of ethnic networks and business networks in the path of evolution of Chinese migrant entrepreneurship? Thus, the paper analyses the structure and characteristics of ethnic networks and business networks and the role of each in the growth and evolution of Chinese migrant entrepreneurship. Our research considers business networks as the main focus of analysis that may replace social ties in consolidating insidership in new business settings and in finding new opportunities. A qualitative methodology is adopted, namely a multiple case study. Five cases of individual Chinese companies settled in a specific area are presented, for which the networks in which they are involved are traced and analysed. The case analysis shows that in the evolution of Chinese migrant entrepreneurship, ethnic networks are very important in the early phases of the business, but the role of cross-cultural business networks becomes relevant for further development. Implications—managerial and for policy makers—are highlighted and discussed.     

What makes a die-hard entrepreneur? Beyond the ‘employee or entrepreneur’ dichotomy

The article makes three contributions to the economics literature on entrepreneurship. We offer a new measure of entrepreneurship which accounts for variations in persistence in self-employment and as a result avoids the weakness of approaches which categorise an individual as an entrepreneur by observing their occupation at just one point in their career. We outline an econometric methodology to account for this approach and find, via a statistical test of model selection, that it is superior to probit/logit models, which have dominated the literature. While our results indicate that this existing literature is good at explaining an individual’s propensity to try self-employment, we find that entrepreneurial persistence is determined by a different model and unearth some new insights. Early self-employment encourages entrepreneurial persistence. For men, inheritance encourages persistence, and facilitates initial self-employment. Having a self-employed father as a role model makes sons persist longer. However, somewhat surprisingly, early experience of unemployment does not affect the probability of self-employment, while reducing persistence. The popular ‘unemployment push effect’ is thus rejected in our sample.

The effect of education and experience on self-employment success

The impact of education on the business success of an entrepreneur has been the subject of much discussion and speculation in both the popular and academic press. The literature is full of folklore focusing on the high-school drop out who made it big in the business world armed with an education from the school of hard knocks. Until recently this was part of the myth surrounding entrepreneurship. The myth takes shape in three basic areas. The first looks at the entrepreneur's level of education relative to the general public. The second area addresses the effect of education on people becoming entrepreneurs on a macro level. Do people with higher levels of education start more businesses than people with less education, does it increase the probability of becoming an entrepreneur? The third area concerns the micro-economic effect on individual entrepreneurs. Does education help an entrepreneur succeed?Past research on education and entrepreneurship consists mostly of institutional studies at universities with established programs. These offer good support for the outcome of educational programs. However, these studies are poorly circulated and seldom published because of the limited sample sizes (McMullan (1988) summarized several such studies). In this study the literature is reviewed in three areas mentioned above and new information on the relationships between education, experience, and self-employment is provided.The empirical part of this study examines the effect of education and experience using U.S. census data. Self-employment is used as a surrogate for entrepreneurship and the analysis controlled for farmers and professionals (medical doctors, lawyers, accountants, etc.) so that it would more closely fit our conception of an entrepreneur. Earnings potential was used as a measure of success. We recognize that success is a subjective experience based on one's expectations and actual outcomes; however, we believe that earnings provided a global indicator of success that is quantifiable relative to the sample used. Four specific hypotheses were generated and tested using the data.The first hypothesis (Self-employed have more years of formal education than those who do not work for themselves.) was confirmed with the years of education for the self-employed being 14.57 years for all workers, 14.71 years for males, and 14.13 years for female workers. Wage and salaried workers came in nearly one full year lower with: 13.58 years for all worked, 13.73 for male workers, and 13.40 for female workers.Hypothesis two (The number of years of formal education will increase the probability of becoming self-employed.) was supported with the probability of becoming self employed increasing by 0.8% for each year of education providing a significant relationship (t = 32.11 for all workers, t = 21.95 for males, and t = 20.76 for females, p < .0001 for all three).Hypothesis three (The relationship between years of formal education and success of the self-employed, as well as the general population will be positive and significant.) was supported using the “Beta” coefficients in a “Probit” regression model, indicating that self-employment and wage and salaried earnings increase significantly for each year of education. Self-employment earnings increased $1207.63 a year for each year of education ($1212.76 for males and $414.81 for females). Wage and salaried workers earnings increased $825.99a year for each year of education ($1023.33 for males and $369.37 for females).Hypothesis four (The relationship between experience and self-employment success will be positive and significant, but weaker than the impact of education.) was supported. All self-employed workers, both male and female, had over two years more experience than their wage and salaried counterparts. There is a strong positive relationship between self-employment and both experience and earnings with the exception of self-employed females whose experience did not significantly impact their earnings.In conclusion, a general education has a strong positive influence on entrepreneurship in terms of becoming self-employed and success. Experience has a similar relationship although not as strong. Future studies need to examine the impact of specific types of education, such as business school or entrepreneurship classes, on the entrepreneurial outcomes in the studies.     

Only the lonely? The influence of the spouse on the transition to self-employment

Previous research showed that married individuals are overrepresented among the self-employed. Few studies proposed skill-spillover between the spouses within the marriage as an explanation. This paper deviates from the previous research by exploring different relationship contexts (e.g., cohabitation, being married or divorced, a widow(er) or single) and the role of partner influences under these contexts. It argues that the interaction between gender and relationship status implies variation in not only resources but also constraints, and hence sorts individuals into two different types of self-employment: entrepreneurial self-employment (i.e., incorporated business) and unincorporated self-employment. Using “Panel Study of Income Dynamics (PSID) 1965–2005” data, results of the competing risk models show that marital status contributes to both types of self-employment transitions, especially for men, but also for women. Cohabitation is a less supportive context for entrepreneurship and a partner’s self-employment experience increases only women’s likelihood of entering into entrepreneurship. These results suggest that skill-spillover between partners might be context dependent and only in one direction (from men to women).     

Tax structure and entrepreneurship

Using macro-level panel data, we examine the effects of taxation and tax progressivity on entrepreneurship in a large group of European countries. We address two main questions. First, we try to explore whether tax increases discourage entrepreneurial activity, focusing on new self-employment (nascent entrepreneurship). Second, we investigate the impact of tax progressivity on entrepreneurship, again focusing on new self-employment. We find that tax progressivity at higher-than-average incomes has a robust negative effect on nascent entrepreneurship. We discuss the policy implications of our results.     

Racial segregation in the public schools and adult labor market outcomes: the case of black Americans

Residential segregation has played a central role in theories of minority entrepreneurship and in the diversification of the U.S. labor market. Racial diversity in public accommodations, including schools, has been an issue of continuous public policy debate at least since the U.S. Supreme Court’s Plessy versus Ferguson decision (1896). This study applies theory from the literature on social capital to an examination of the role of racial segregation in the public schools of blacks during childhood on their adult likelihood to become self-employed and their level of occupational status. The model results indicate that, after controlling for a number of individual, household and metropolitan-area factors, lower rates of segregation during public schooling results in higher likelihood of wage-salary employment and self-employment among a cohort of black Americans that attended public schools during the 1960s.     

Switching to self-employment can be good for your health

Relying on theoretical insights from the Job Demand-Control model, which links occupational characteristics to health, this paper provides the first causal evidence of the physical and mental health consequences of self-employment. I utilize German longitudinal data for the period 2002–2014 and difference-in-differences estimations to study switches from unemployment to self-employment (necessity entrepreneurship) and transitions from regular- to self-employment (opportunity entrepreneurship). I find that necessity entrepreneurs experience improvements in their mental but not physical health, while opportunity entrepreneurship leads to both physical and mental health gains. Importantly, the health improvements cannot be explained by changes in income or working conditions and are not driven by personality and risk preferences or the local unemployment conditions. As such, the findings highlight an additional non-monetary benefit of self-employment and have implications for entrepreneurship theory and practice, current and would-be entrepreneurs, as well as policy-makers.     

An Exploration of Entrepreneurial Activity among Asian Small Businesses in Britain

This paper investigates various aspects of Asian entrepreneurship based on a survey of small Indian, Pakistani and Bangladeshi businesses in Britain. It analyses the motives for business entry, the choice of initial business, the factors that influence business success and the validity of treating Asian businesses as a homogeneous group. It cannot support the hypothesis that Asians were pushed into self-employment in order to avoid unemployment. The nature of entrepreneurial entry, predominantly through small retail businesses, depends largely on the access to informal, rather than formal, sources of capital and information or advice as well as on the entrant's previous experience. Business success appears to be closely related both to the share of personal capital invested at start-up and to the entrepreneur's educational qualifications. The evidence suggests that the motives for business entry differ among the three Asian communities studied although that does not seem to have a lasting effect on their business success. The predisposition of many well educated Asian migrants towards establishing businesses with their own capital in an unfamiliar environment illustrates their entrepreneurial spirit. The paper points to the potential role of banks and government agencies in encouraging the creation of many more such small businesses in Britain.     

“Misfits,” “stars,” and immigrant entrepreneurship

Prior research has shown that immigrants are more likely than natives to become entrepreneurs, and that entrepreneurs are disproportionately drawn from the extremes of the ability distribution. Using a large panel of US residents with bachelors’ degrees in scientific fields, we ask whether higher rates of entrepreneurship among immigrants can be explained by their position on the ability spectrum and establish four new facts about science-based and immigrant entrepreneurship. First, in this sample, an immigrant entrepreneurship premium exists only in science-based entrepreneurship. Second, this premium persists after controlling for ability (measured by paid employment wage residuals.) Third, a U-shaped relationship between ability and entrepreneurship exists only in non-science entrepreneurship; for science entrepreneurship, the relationship is increasing. Finally, the immigrant premium in science entrepreneurship is largest among immigrants with non-US degrees and those from non-English-speaking or culturally dissimilar countries. Stated preferences for self-employment do not explain the immigrant premium. The results suggest that immigrants may on average have higher levels of unobservable skills related to entrepreneurship.     

Labour market institutions,learning and self-employment

We develop a dynamic partial-equilibrium model to analyse how labour market institutions (wage compression, minimum wages, unemployment benefits, mobility costs and fixed-costs of self-employment) and learning affect who and when people become self-employed. We find that certain ability groups of workers become self-employed for both “carrot” and “stick” reasons: Some prefer self-employment to the low institutionalised wage, while others are not productive enough to qualify for a job at the institutionalised wage. Furthermore, wage compression and learning may give rise to a class of switchers who start in wage employment and later switch to self-employment. Several predictions of the model are consistent with observed empirical regularities, such as the existence of a group of low-skilled self-employed workers, the increasing propensity for self-employment over age groups and the larger spread in earnings among self-employed.     

The determinants of changes in U.S. self-employment, 1968–1987

Summary The self-employment rate depends on the distribution of full-time workers across ages, educational levels, and industries and on tax rates and business conditions. About 90 percent of the variation in self-employment across time and across age groups is explained by these factors. Swings in the self-employment rate over time result from the interplay of changes in these factors. The entry of the baby-boom generation into the labor-force beginning in the later 1960s has led to a decrease in the average age of the full-time nonagricultural workforce and has tended to decrease the self-employment rate. The secular decline of manufacturing, the secular rise of services, and secular increases in educational levels have tended to increase the self-employment rate. Fluctuations in business conditions and tax rates have also affected the self-employment rate. The evidence reported here suggests that self-employment is procyclical, although not strongly so. Increases in effective federal income during the late 1970s tended to increase self-employment rates while decreases during the Reagan years tended to decrease self-employment rates.These findings are helpful for speculating about the answers to three important questions. First, are people more entrepreneurial than they used to be? The fact that the ebb and flow of self-employment over time can be explained almost entirely by structural changes in the economy suggests that people with given demographic characteristics and morking in particular industries have not become more likely to try entrepreneurship²⁸.Second, did the supply of entrepreneurs increase during the Reagan years? The answer is yes and no²⁹. The number of people who operate full-time businesses has certainly increased: from 5.99 million in 1981 to 6.46 million in 1985. The absolute supply of entrepreneurs has risen. But the number of people who are full-time wage workers has also increased: from 65.2 million in 1981 to 71.6 million in 1985. The fraction of workers who operate businesses has fallen: it increased from 9.3 percent in 1981 to a peak of 10.0 percent in 1983 and then fell to 9.1 percent in 1985. The relative supply of entrepreneurs has thus fallen. Ironically, one of the many causes for the decline in the relative supply of entrepreneurs was the decrease in tax rates that were, according to supply-side advocates, supposed to have increased entrepreneurship³⁰.Third, will we see rising or falling self-employment in the coming decade? Predicting future rates of self-employment is treacherous because these rates depend upon many factors. The aging of the baby-boom generation will by itself lead to sharply increasing rates of self-employment as the baby-boomers, who started turning 40 in 1985, pass through the peak years of self-employment. This upward trend may be offset by a number of more fragile structural changes in the economy. The sharp decline of the dollar may reinvigorate manufacturing at the expense of services. If so, self-employment will decline. Further lowering of federal income tax rates may reduce the gains from tax-avoidance through self-employment and thereby impart a further downward trend in self-employment rates. Other changes that have helped increase self-employment may have run their course. Female labor-force participation rates and educational levels among both men and women may have reached a plateau. If so, these factors will cease to be a factor in changing self-employment rates.This paper has analyzed the determinants of changes in the aggregate rate of self-employment across age cohorts. When examining aggregate rates of self-employment we have ignored more subtle questions concerning why particular individuals choose to try self-employment at particular times in their careers and what makes a successful entrepreneur. These questions await future research.We would like to thank Jules Lichtenstein and Edward Starr for helpful comments and suggestions.     

How much of a socialist legacy? The re-emergence of entrepreneurship in the East German transformation to a market economy

We investigate how institutional change—the transition from a socialist system to a western type market economy—relates to the re-emergence of entrepreneurship in East Germany. This region is particularly well suited for such a study because of the rapid change of the institutional framework and the possibility to use West Germany as a benchmark. It took about 15 years until self-employment levels in East Germany reached those of West Germany. Despite this catch up, we find a number of peculiarities in East German self-employment that appear to be a continuing legacy of the socialist period. There is also a considerable correspondence of the regional levels of self-employment before, during and after the socialist period, suggesting the existence of a long-lasting regional entrepreneurship culture that can be regarded as an informal institution. This is in line with the hypothesis that informal institutions change much more slowly than formal institutions.     

Windfalls,Wealth, and the Transition to Self-Employment

We examine the transition to, and survival in, self-employment among a sample of British workers. We find evidence of capital constrains, with wealthier individuals being more likely to transit ceteris paribus. Windfall gains raise the probability of transition at a decreasing rate – gains or more than ￡20000–￡22000 reduce the probability of transition – and larger gains reduce the probability of transition amongst relatively wealthier respondents. We also find peculiarities in the effects of particular types of windfall; redundancy payments and inheritances raise the probability of transition, whilst lottery wins reduce the probability of (especially male) transitions. In contrast, inheritances (lottery wins) hinder (augment) self-employment survival.     

Inequality and entrepreneurial thresholds

We explore the relationship between inequality and entrepreneurial activity. Drawing on cross-sectional data from a largescale survey of the economic conditions of individuals across India, we develop a number of dimensions of inequality to explore empirically how inequality interacts with entrepreneurship, operationalized as self-employment or as employing other people. We find compelling evidence that there are thresholds to becoming self-employed, and even more so to assembling the combinations of resources and personal attributes required to become an employer. Greater inequality leaves more people unable to make the transition to self-employment, leaving casual laboring as the occupation of necessity. At the same time, inequality increases the number of employers in a society, by concentrating resources - particularly land and finance - enough for significant numbers of people to be able to cross this higher threshold. Lastly, greater differentiation into social or religious groups curtails the ability to cross either entrepreneurial threshold, presumably by limiting the extent and benefits of social networks of value for entrepreneurship.     

The Determinants of Latent Entrepreneurship in Japan

This paper examines regional characteristics affecting the latent entrepreneurship in Japan, focusing on regional macroeconomic indicators, existing density of establishments and human capital, and business start-up assistance programs by local governments. We define two types of people having the latent entrepreneurship as follows (1) persons merely wishing to be a self-employed worker, and (2) persons preparing to be a self-employed worker out of the former definition. Total cash earnings and the unemployment rate, which are the macro economic indicators, had positive effects on latent entrepreneurship in Japan. Judging from the significance of their estimations, the latent entrepreneurship is explained by the “Push hypothesis”. If we examine the problem more closely, it is necessary for us to identify government assistance programs which make the latent entrepreneurs more self-employment.     

Who skims the cream of the Italian graduate crop? Wage employment versus self-employment

This paper tests whether academic achievement is a significant determinant of employment status in the Italian labor market: are new entrepreneurs selected from the top or bottom end of the graduate ability distribution? Is the cream of the graduate crop pulled into self-employment by the higher expected earnings or are individuals with lower degree score pushed into entrepreneurship by poor alternatives? Our data show a strong negative relation between academic achievement and self-employment status, i.e., we find skimming of the best graduates into wage and salary work.     

The Heterogeneity of Self-Employment: The Example of Asians in the United States

Self-employment rates differ widely across industries and across racial and ethnic categories. The heterogeneity of self-employment is most pronounced among Asians working in the U.S. The self-employment rate of Koreans is almost eight times greater than the self-employment rate of Laotians. This paper examines the pattern of self-employment across more narrowly defined classifications of Asians and industries to illustrate the heterogeneity of self-employment, and discusses the implications of this heterogeneity.