Hidden Challenges for Black Women Entrepreneurs
Dr. Algernon Austin is a Senior Research Fellow at the Center for Global Policy Solutions. Previously, he directed the Economic Policy Institute’s Program on Race, Ethnicity, and the Economy (PREE). As the first director of PREE, Algernon built the program over six years into a nationally-recognized source for expert reports and policy analyses on the economic condition of America’s people of color.
Although Black women’s firms appear to be doing very well when looked at from afar, upon closer examination, problems become apparent. In 2015, American Express OPEN reported that firms owned by African American women had the strongest rate of growth in number and revenue among women-owned firms. Looking more carefully at the American Express OPEN report, however, one sees that among women-owned firms, Black women had the smallest firms when measured by average number of employees and the lowest average revenues. For Black women entrepreneurs, strong growth hasn’t yet translated into strong firms.
My analysis in “The Color of Entrepreneurship: Why the Racial Gap among Firms Is Costing the U.S. Billions“ also reveals signs that Black women are facing difficulties in entrepreneurship. I note that while Black women are well-represented among business owners without paid employees, they are relatively poorly represented among business owners with paid employees. In 2012, only 2.5 percent of Black women’s firms were employer firms (i.e., firms with paid employees), the lowest rate of the 10 race-gender groups examined (Figure A). For Hispanic women, the rate of ownership of employer firms was 4.6 percent, nearly double the rate for Black women. For other groups of women, the rates were higher still: 5.9 percent for American Indian women, 11.9 percent for White women, and 16.9 percent for Asian American women.
Unlike the American Express OPEN report, which combines firms with and without paid employees in its analysis, “The Color of Entrepreneurship“ focuses mainly on firms with paid employees. Employer firms tend to have a greater economic impact, and they are more likely to enable their owners to build wealth.
Although the number of Black women in the labor force is very close to the number of Hispanic women in the labor force (8.1 million versus 8.6 million 25- to 64-year-old workers, respectively, in 2012), the difference in the number of employer firms owned by these groups is substantial. In 2012, Black women owned about 39,000 firms with paid employees while Hispanic women owned roughly 67,000, over 70 percent more. Also, in 2012, Black women’s employer firms had average annual sales of $557,000 while Hispanic women’s firms had $766,000.
Further research is necessary to better understand the challenges facing Black women entrepreneurs. Given the similar labor force size and wealth profiles of Black women and Hispanic women, one would not expect them to differ so much in the number of their employer firms. While median wealth is similar for these two groups, it is possible that the overall distribution of their wealth has significant differences. Is there a greater share of high-wealth Hispanic women who are able to start businesses than Black women? There are many questions about the state of Black women entrepreneurs for which we do not yet have answers.