CHAPTER 1

A Macro View of Hispanic Self-Employmentin the 2000s

Hispanics represented one out of every six peoplein the United States in 2010, up from one out of eight a decadeearlier. Arguably, this Hispanic population growth was the catalyst for thesharp increase in the number of Hispanic business owners in the 2000s. Forexample, the most recent version of the Survey of Business Owners (SBO)reports that the number of Hispanic-owned businesses increased by 43.7 percent,from 1.6 million to 2.3 million firms, between 2002 and 2007, tripling the14.5 percent growth in the number of businesses owned by non-Hispanics.

Figure 1.1 illustrates the rise in Hispanic entrepreneurship in the 2000s.The representation of Hispanics among the self-employed aged 25–64 increasedby 58.5 percent, from 8.2 percent to 13.0 percent, between 2000 and2010 (see Panel A). This increase outstripped the 36.4 percent growth amongHispanics workers in general during this time. While Hispanics remainedunderrepresented in the self-employment sector, these changes served to reducethe extent of the underrepresentation of this population by the end ofthe decade.

A closer examination of the self-employed indicates that the disproportionategrowth of Hispanics in the entrepreneurial sector stemmed fromtheir rising presence in the U.S. workforce and from the strengthening of entrepreneurialtendencies within the Hispanic population. Indeed, our estimatesreveal that Hispanic self-employment rates significantly increased from7.9 percent in 2000 to 9.1 percent in 2010, rising almost every year during thedecade. In contrast, despite increasing in the early 2000s, the self-employmentrates of non-Hispanic workers declined over the time frame. Hispanics particularlynarrowed their self-employment gap vis-à-vis non-Hispanics in thesecond half of the decade.

We provide in this chapter an overview of these changing entrepreneurialtendencies among the Hispanic population, which will set the stage for moredetailed topics discussed later in the book. This chapter also presents informationon the heterogeneity of the Hispanic population, such that one-size-fits-allpolicies affecting Hispanics overall could have disparate implicationsfor specific Hispanic groups.

Hispanic Self-Employment and Macroeconomic Conditions

The first ten years of the new millennium witnessed historically sharp variationsin the business cycle. This decade provided entrepreneurial opportunities,but it also brought with it significant challenges for entrepreneurs. Tobegin exploring this issue, we consider changes in the business cycle measuredby annual economic growth rates (i.e., the percentage change in realgross domestic product). While U.S. economic growth slowed from 4.1 percentin 2000 to 1.1 percent in 2001, it mostly recovered from this slowdownover the following few years, as the economy expanded by 3.5 percent in 2004.After 2004, the U.S. economy began to slow down, and eventually it hit aneconomic recession in 2008 (or the Great Recession, which technically startedin December 2007). The economy shrank by 0.3 percent in 2008, and despitethe fact that the Great Recession officially ended in June 2009, throughout2009 the economy contracted by another 3.5 percent. By 2010, economic outputrebounded, growing at an annualized rate of 3.0 percent.

With few exceptions, the self-employment rates of non-Hispanic workersmoved with economic growth. As the economy grew, in general so did non-Hispanicself-employment rates. When the economy slowed down, the entrepreneurialtendencies of non-Hispanic workers fell (although they kept fallingin 2010, despite the recovery). Through 2005, the self-employment rates ofHispanics changed in a similar fashion as those of non-Hispanics. In much ofthe second half of the decade, however, Hispanic entrepreneurial tendenciesmoved in the opposite direction from those of non-Hispanics. The Hispanicself-employment rate peaked at 9.3 percent in 2009, and while it declined to9.1 percent in 2010, it remained higher than at the height of the business cycle.

What might explain the resilience of Hispanic self-employment rates inthe face of a slowing economy in the second part of the decade? An answerto this question involves an understanding of the factors that influence theself-employment decision and self-employment survival. From an individualperspective, research on the factors related to business ownership points tothe relative returns to entrepreneurial employment, human capital, creditaccess from institutions and families (including family experience in self-employment),and preferences for business ownership. The group perspectivepoints to the importance of labor-market discrimination and social capital inleading to the entrepreneurship decision.

The self-employment decision has also been cast in terms of occupationand industry, as well as spatial differentials. For example, economists MagnusLofstrom and Chunbei Wang, in a 2009 study of the self-employment patternsof Mexican Americans, noted the importance of recognizing potentialissues related to heterogeneity in business ownership across industries, suchas differences in the "human and financial capital intensiveness" among ethnicgroups, which might lead to different barriers to entry across industries.Economists Timothy Bates and Alicia Robb (2008) further reported that minorityneighborhoods do not offer the same business opportunities as thebroader regional marketplace; they concluded that the housing market in minorityneighborhoods is associated with reduced business viability.

Of course, these are but some of the myriad issues related to...