Pushed out or pulled in? Self-employment among ethnic minorities in England and Wales
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: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)
Imputing a continuous income variable from grouped and missing income observations
Economics Letters
(1994)- et al.
The ethnic wage gap and employment differentials in the 1990s: evidence for Britain
Economics Letters
(1998) - et al.
Ethnic residential concentration and the protected market hypothesis
Social Forces
(1985) - et al.
Ethnicity and entrepreneurship
Annual Review of Sociology
(1990) A Parents' and Teachers' Guide to Bilingualism
(1995)An exploration of entrepreneurial activity among Asian small businesses in Britain
Small Business Economics
(1998)- et al.
House prices, the supply of collateral and the enterprise economy
Economic Journal
(1996) - et al.
The wage curve
Scandinavian Journal of Economics
(1990) - et al.
What makes an entrepreneur? Evidence on inheritance and capital constraints
Journal of Labor Economics
(1998) The self-employment experience of immigrants
Journal of Human Resources
(1986)
Consumer discrimination and self-employment
Journal of Political Economy
Ethnicity and self-employment in Britain
Oxford Bulletin of Economics and Statistics
Trends in self-employment: government policy and the role of the macroeconomy
The Manchester School
Immigrant entrepreneurship: effects of ethnic market size and isolated labor market pool
American Sociological Review
An estimated model of entrepreneurial choice under liquidity constraints
Journal of Political Economy
Ethnic and racial self-employment differences and possible explanations
Journal of Human Resources
Immigrant wage differentials and the role of self-employment in Australia
Australian Economic Papers
Cited by (293)
Choices between adaptation and coping strategies as responses to cyclonic shocks and their impact on household welfare in villages on the east coast of India
2023, International Journal of Disaster Risk ReductionOccupational choice and entrepreneurship: From necessity to opportunity
2024, Annals of Public and Cooperative EconomicsThe promise of entrepreneurship ecosystems: a conceptual model for black American entrepreneurs
2024, Journal of Research in Marketing and EntrepreneurshipEntrepreneurial orientation: An assessment of empirical evidences from Italy and some hints for further research
2023, Entrepreneurial Processes in the Era of Digital TransformationThe influence of start-up motivation on entrepreneurial performance
2023, Small Business EconomicsIs Rising Self-Employment Associated with Material Deprivation in the UK?
2023, Work, Employment and Society