Working Paper: NBER ID: w2627
Authors: George J. Borjas; Stephen G. Bronars
Abstract: Self-employment rates and incomes differ significantly by race. We show that these differentials arise in markets with consumer discrimination and incomplete information about the price of the good and the race of the seller. Equilibrium income distributions have two properties: mean black incomes are lower than mean white incomes, and the returns to ability are lower for black than for white sellers. Able blacks, therefore, are less likely to self-select into the self-employment sector than able whites. Using the 1980 Census data, we find that observed differences in the self-employment income distributions are consistent with the theoretical predictions.
Keywords: self-employment; consumer discrimination; racial differences; income distribution
JEL Codes: J15; J23; J31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| consumer discrimination (J70) | lower mean incomes for black sellers (F61) |
| consumer discrimination (J70) | lower returns to ability for black sellers (J79) |
| consumer discrimination (J70) | less likely to self-select into self-employment for able blacks (J79) |