Elsevier

Labour Economics

Volume 7, Issue 5, September 2000, Pages 603-628
Labour Economics

Pushed out or pulled in? Self-employment among ethnic minorities in England and Wales

https://doi.org/10.1016/S0927-5371(00)00015-4Get rights and content

Abstract

High rates of self-employment among ethnic minorities in England and Wales are investigated using a framework in which the self-employment decision is influenced by ethnic-specific attributes as well as sectoral earnings differentials. As expected, differences in an individual's predicted earnings in paid and self-employment are strongly correlated with self-employment decisions. Individuals with low English fluency, and recent immigrants, are less likely than other members of ethnic minorities to be self-employed. Perhaps surprisingly, this is also true of individuals living in “enclaves” — areas with a high percentage of their own ethnic group. The relatively deprived nature of such areas of England and Wales may explain this.

Introduction

In many developed countries ethnic minorities are disproportionately represented in self-employment. In Britain, the 1991 Census of Population reported that non-whites had a self-employment rate of 14.6% compared to 12.3% for whites. This disguises significant variation between different ethnic groups however. Self-employment rates ranged from 5.8% for Black Caribbeans to 26.6% for Chinese. Research on this issue in Britain Metcalf et al., 1996, Clark and Drinkwater, 1998 has focused on two sets of causal factors.1 First, it is argued that ethnic minority workers enter self-employment as a rational response to the labour market obstacles, often in the form of employer discrimination, facing their group. These obstacles (or push factors) reduce the opportunity cost of self-employment and hence, other things equal, should lead to an increased representation of discriminated-against groups in that sector. This, however, ignores the possibility that there may be group-specific influences which would lead minorities into self-employment even in the absence of discrimination. This second set of (pull) factors includes such things as the existence of ethnic enclaves which may provide a self-sustaining economic environment, the influence of religion and access to informal sources of finance and labour through familial ties or shared language.

In this paper a simple theoretical model is presented, which demonstrates that both push and pull factors can influence the rewards available to members of different ethnic groups and so alter the attractiveness of self-employment relative to paid-employment. An empirical model of self-employment propensity is then estimated using an econometric framework incorporating the determination of earnings and choice of sector. The data set used, the Fourth National Survey of Ethnic Minorities, was specially designed to investigate the economic and social circumstances of Britain's ethnic population. The results suggest a role for both group-specific and labour market factors.

Section snippets

Theoretical background

Self-employment is a diverse and multi-faceted form of economic activity. It is therefore unlikely that one all-encompassing theory will explain why ethnic minorities are over-represented in this sector. One explanation emphasises the disadvantages faced by ethnic minorities in the paid labour market as the primary cause for their higher rates of self-employment. However, it is difficult to reconcile this explanation with the observed variation in self-employment rates across ethnic groups. A

Data

The data used in this paper are taken from the Fourth National Survey of Ethnic Minorities (Fourth Survey) — the latest in a series of studies undertaken by the Policy Studies Institute investigating the social and economic conditions of Britain's ethnic minorities.6 The interviews were conducted between November 1993 and December 1994 and covered a wide range of topics including family structures, employment, income, education,

Estimation and results

The decision to enter self-employment is modelled using the equation:Zi*=α01(YiS−YiP)+α2Wiii=1,…,n.Here Z* is an index of self-employment propensity, YS and YP are log earnings in self and paid-employment, respectively, W is a vector of characteristics which influence choice of sector and η is a normally distributed random error. The α terms are parameters to be estimated. The parameter α1 measures the importance of the log earnings differential between self and paid-employment. The

Concluding comments

The Fourth National Survey of Ethnic Minorities was used to identify factors which can account for differences in self-employment rates amongst ethnic minorities in England and Wales. It is found that the difference between an individual's predicted earnings in paid and self-employment exerts a powerful influence, suggesting that the existence of discriminatory wages in the paid-employment sector may push minorities into entrepreneurship.

Of the pull factors analysed, it is found that ethnic

Acknowledgements

We would like to acknowledge financial assistance from the ESRC (grant no. R000235827) and the Canadian Employment Research Forum. The Fourth National Survey of Ethnic Minorities was undertaken by the Policy Studies Institute, in association with Social and Community Planning Research and made available through the Data Archive at the University of Essex. We would like to thank seminar participants at the University of Keele, the Economics of Education and Employment Group, the Royal Economic

References (34)

  • C Bhat

    Imputing a continuous income variable from grouped and missing income observations

    Economics Letters

    (1994)
  • D Blackaby et al.

    The ethnic wage gap and employment differentials in the 1990s: evidence for Britain

    Economics Letters

    (1998)
  • H Aldrich et al.

    Ethnic residential concentration and the protected market hypothesis

    Social Forces

    (1985)
  • H Aldrich et al.

    Ethnicity and entrepreneurship

    Annual Review of Sociology

    (1990)
  • C Baker

    A Parents' and Teachers' Guide to Bilingualism

    (1995)
  • A Basu

    An exploration of entrepreneurial activity among Asian small businesses in Britain

    Small Business Economics

    (1998)
  • J Black et al.

    House prices, the supply of collateral and the enterprise economy

    Economic Journal

    (1996)
  • D.G Blanchflower et al.

    The wage curve

    Scandinavian Journal of Economics

    (1990)
  • D.G Blanchflower et al.

    What makes an entrepreneur? Evidence on inheritance and capital constraints

    Journal of Labor Economics

    (1998)
  • G.J Borjas

    The self-employment experience of immigrants

    Journal of Human Resources

    (1986)
  • G.J Borjas et al.

    Consumer discrimination and self-employment

    Journal of Political Economy

    (1989)
  • K Clark et al.

    Ethnicity and self-employment in Britain

    Oxford Bulletin of Economics and Statistics

    (1998)
  • M Cowling et al.

    Trends in self-employment: government policy and the role of the macroeconomy

    The Manchester School

    (1997)
  • M.D.R Evans

    Immigrant entrepreneurship: effects of ethnic market size and isolated labor market pool

    American Sociological Review

    (1989)
  • D Evans et al.

    An estimated model of entrepreneurial choice under liquidity constraints

    Journal of Political Economy

    (1989)
  • R.W Fairlie et al.

    Ethnic and racial self-employment differences and possible explanations

    Journal of Human Resources

    (1996)
  • M Kidd

    Immigrant wage differentials and the role of self-employment in Australia

    Australian Economic Papers

    (1993)
  • Cited by (293)

    View all citing articles on Scopus
    View full text