Entrepreneurship is both a key driver of economic activity and an essential path to economic opportunity for millions of Americans. Historically, discrimination and lower levels of wealth and income have been barriers to entrepreneurship by African-Americans, but that’s begun to change. According to newly released data from the Census Bureau, its now estimated that there are more than 108,000 African-American owned businesses with a payroll in the U.S.
The new survey, conducted by the Census Bureau, in cooperation with the Ewing Marion Kauffman Foundation, provides a rich source of data about the economic contributions of African-American-owned businesses. Called the Annual Survey of Entrepreneurship, this is the first iteration of a survey that gathers data which asks detailed questions about key demographic characteristics of business owners, including gender, race and ethnicity, and veteran’s status. And unlike other business data, the entrepreneurship survey reports data by age of business, allowing us to examine separately the economic contributions of newly formed businesses.
The survey focuses on businesses with paid employees, and so generally excludes self-employed individuals working on their own. In 2014, the survey reports that there were more than 5.4 million businesses with a payroll in the United States. Of these, about 270,000 businesses were public corporations (or other business entities for which the gender or other demographic characteristics of owners could not be ascertained). These large corporate businesses employed almost 60 million workers (52 percent of total payroll employment). The remaining 5.1 million firms with identifiable owners employed about 55 million workers.
The survey concludes that about 108,000 businesses, or roughly two percent of those businesses with individually identifiable owners, were owned exclusively by African-Americans. Together these businesses employed more than 1 million workers nationally. On average, African-American owned businesses are younger than other businesses; about 14.1 percent of these African-American-owned businesses had started in the past two years, compared to about 8.9 percent of all employer firms. African–owned businesses are found in all economic sectors, but are disproportionately represented in health and social services. About 28 percent of African-American owned businesses are engaged in health and social services, compared to about 12 percent of all individually owned businesses.
The report also offers data on business ownership patterns for the 50 largest US metropolitan areas. We thought it would be interesting to see how different areas ranked in terms of the share of all businesses with employment that were owned by African-Americans.
Here’s a listing of the number of African-American owned businesses per 1,000 African-Americans in the population in each of the fifty largest US metropolitan areas. Think of this as an indicator of the likelihood that an African-American owns a business with a payroll in each of these places. Overall, about three in one thousand African-Americans in these fifty large metropolitan areas own a business.
Among the cities with the highest proportions of business owners among the African-American population are San Jose, St. Louis, Denver and Seattle. Each of these cities has about six or seven African-American entrepreneurs per 1,000 African-American residents. San Jose is famously the capital of Silicon Valley, which may explain why such a relatively high fraction of its African-American residents own businesses with a payroll. In contrast, Louisville, Buffalo, Memphis and Cleveland have much lower rates of African-American entrepreneurship, each of these metro areas has fewer than two African-American entrepreneurs per 1,000 African-American residents.
Another way to think about this data is to compare the share of the population in each metropolitan area that is African American with the share of entrepreneurs who are African American. The following chart shows this information. As one would expect, as the share of the African-American population increases, so too does the fraction of entrepreneurs who are African-American. There are some clear outliers. As shown on the chart, St. Louis has somewhat more African-American entrepreneurs than one would expect, given the size of is African-American population, and conversely, New Orleans has fewer. But on average, entrepreneurship is much less common among African-Americans than the overall population, in every metro area. On average, the share of the African-Americans who are entrepreneurs is about one-fifth their share of the population of a given metropolitan area.
In a previous post, we examined the geography of women-owned businesses. The Census plans to conduct its new survey of entrepreneurs on an annual basis. This promises to be a useful was of benchmarking efforts to draw more Americans of every stripe into business ownership.