Economic Roundtable

Black entrepreneursU.S. consumer sentiment improved in early May, as optimism about jobs eased the pain of high gasoline and food prices. Economists were less optimistic about the country?s growth prospects, but they were slightly more upbeat about the job market. Their projected drop in the nationwide unemployment rate, however, obscures a depressing outlook for African-Americans, whose jobless rate remains double that of the national average. TNJ queried noted experts about prospects for Black employment, income, poverty and entrepreneurship. Here are their responses:

Cecilia Elena Rouse, Ph.D., Theodore A. Wells ?29 Professor of economics and public affairs, Princeton University
Most economists agree that the economy would have been much worse without the American Recovery and Reinvestment Act. Although the unemployment rate is higher today than it was when the Recovery Act was passed in February 2009, we judge the Act?s effectiveness by comparing today?s economy to what it would have been had the Act not been passed. Economists at the nonpartisan Congressional Budget Office estimate that as of December 2010, the Recovery Act had increased employment by between 1.3 million and 3.5 million and that unemployment is 0.7 to 1.9 percentage points lower than it otherwise would have been. Further, since passing the Recovery Act, the president and the Congress have extended unemployment insurance benefits six more times, created a hiring credit for jobs, provided additional assistance to states and implemented numerous business tax cuts. The tax package passed last December included tax credits and tax rate reductions totaling nearly $800 billion, making it as large as the original Recovery Act.

The Center on Budget and Policy Priorities estimates that just seven of the policies in the Recovery Act kept 1.4 million African-Americans out of poverty. These include the Making Work Pay Tax Credit, additional food stamp assistance, the expansion and extension of unemployment insurance benefits, and increases in the Earned Income Tax Credit and the Child Tax Credit. Also included were investments in education and training to help African-Americans obtain the skills they need for today?s economy; programs to spur investment in urban areas; policies to help small businesses; and $5 billion to create the TANF Emergency Fund, which not only helped states provide more cash assistance to low-income families during the economic downturn, but also allowed states to subsidize jobs for more than 250,000 TANF recipients and other low-income unemployed individuals.

The tax package passed in December continued many of the important tax credits in the original Recovery Act, including the extension of unemployment insurance benefits, the expansions of the Earned Income Tax Credit and the Child Tax Credit, and the American Opportunity Tax Credit, which helps millions of families afford college, as well as a new tax cut that benefits all working Americans.? All of these efforts disproportionately help African-Americans.

Recognizing that much of the increase in African-American unemployment is due to the continued weakness in the U.S. labor market, improved efforts could be made on the part of the public sector to help match workers to jobs as jobs become available.? Such efforts are typically funded through the Workforce Investment Act, whose reauthorization has been languishing in Congress, but which should be a priority this year. Further, the public sector could expand its efforts to encourage employer-linked training, which effectively helps workers develop skills while doing a job and provides employers with an incentive to take a chance on a worker that he or she might not otherwise be willing to take since the training is typically subsidized.

We must also encourage economic activity in distressed areas, such as encouraging entrepreneurship and small-business expansion. The federal government has taken many steps over the past two years to help small businesses, such as with numerous tax credits and efforts such as STARTUP America. Further efforts to help minority-owned businesses could include expanding access to bonding and other strategies to improve access to capital.

Linda Loubert, Ph.D., professor of economics and urban development, Morgan State University?
The divide between the rich and the poor has grown wider. We see higher poverty rates in areas of high-density population, where African-Americans live. A study I?m doing on income levels between African-American women and white women uses 2000 data on household income by neighborhoods. To date, the data show vast differences between the races. African-American women are not doing better now than they were years ago. Right after the 1960s, it started to get worse for them and it hasn?t gotten any better. African-American women earn $100 less a week than white women, yet more Black women are heads of their households.

The same applies to the male employment rate. In 2008, the employment rate among Black men was 66 percent against 73.7 percent for white men. Now, the employment rate is 56 percent and 68.1 percent, respectively. Even those with jobs and income are not seeing their salaries increase relative to their productivity. Income increases have only gone to those with higher education levels and many of those are in technology-related jobs. That has a greater impact on poverty and increases social ills.

A number of policy attempts are being implemented at the local level to mitigate the problem, such as promoting education. At the high-school level, school districts are trying their best to keep students in school through a variety of programs. At the same time, we need to retool the skills of adults who are out of work for the new technological demands of the new labor market. Retooling skills is the quickest of the available policy options.

Secondly, urban development officials are gentrifying minority communities to spur economic development. Gentrification spurs new businesses and brings in tax dollars. Economic development generally implies more people involved in economic activity to increase income within the area, so you bring in new people with new talents and skills. Urban development officials are trying to get people to move from the suburbs back to the cities. When these people come in, they purchase from local businesses and invest in education, which increases the economic activity in those communities and that translates into jobs.?

Vicki Bogan, Ph.D., assistant professor, Charles H. Dyson School of Applied Economics and Management, at Cornell University
Self-employment, or entrepreneurship, has long been a means for the economic advancement of numerous ethnic groups. Moreover, small-business owners have significant political influence in the United States. Studies show that whites are three times as likely to own businesses as African-Americans. The common explanation for the underrepresentation of African-Americans in this vital sector is that African-American culture does not promote entrepreneurship. However, a study I recently conducted with William Darity Jr., a professor at Duke University, disapproves such simple answers.?? In fact, using 90 years? worth of data, we found that there are many other reasons for the wide disparity in Black/white business ownership rates, and most of them have to do with what African-Americans don?t have.

African-Americans have low levels of education, low asset levels, fewer probabilities of having self-employed parents, and they are often discriminated against, including when they seek access to capital, especially from private lending institutions. Historically, the early Black entrepreneurs were freed slaves working in personal services and trades, such as hauling, restaurants and hotel keeping. Many were barbers, mechanics or artisans. However, the Great Black Migration, racial hostility and competition from European immigrants adversely impacted their efforts, leading to the demise of Black businesses in northern cities.

Government policies favored European immigrants while failing to protect the rights of Blacks to pursue employment opportunities, acquire property and obtain human capital. In time, poverty in the Black community made it difficult for proprietors to generate the cash flow necessary for business growth. Moreover, potential Black entrepreneurs could not obtain formal business training and restrictive covenants in real estate and business licensing often prevented Black storeowners from acquiring locations on main business streets.

It wasn?t until the 1980s that increased racial integration in many aspects of American life expanded alternatives of Black consumers and entrepreneurs. Despite greater access to capital, knowledge and experience, Black entrepreneurship suffered other impediments. Declining segregation also meant that Black consumers gained admittance to the more diverse national economy and in the process became less inclined to patronize Black-owned firms. As Black disposable income increased, the portion of their income spent on Black-owned businesses decreased. Additionally, Black businessmen often had difficulty hiring workers with high levels of education and work experience.

While there is a history dotted with success stories, Black entrepreneurs still struggle to even approach the success of most immigrant groups. Yet a strong interest in creating businesses can be found in African-American communities today. The sociological benefits of Black-owned businesses to our society may be more than economic. ??? ?

? Bogan, V. and Darity, W. (2008) ?Culture and Entrepreneurship? African American and Immigrant Self-Employment in the United States,? Journal of Socio-Economics. 37 (5), 1999-2019.