The Mark of Unemployment, and Racial and Gender Disparity on Entrepreneurial Returns

• In Event: 40860 - Section on Economic Sociology Roundtables
  In Refereed Roundtable (60 minute): Table 4. Structural inequalities

Abstract

Necessity entrepreneurship can be a pathway to financial stability for those unable to secure full-time employment in the labor market. However, studies show these businesses may not consistently convert into profitable enterprises. We investigate why these businesses do not prosper by examining earnings differentials between founders who start businesses when unemployed and those who transition into entrepreneurship from paid employment. Drawing on longitudinal data from the Survey of Income and Program Participation, we find evidence of an earning penalty associated with starting a venture while unemployed compared to transitioning into entrepreneurship from a paid position. For instance, entrepreneurs who start their ventures when unemployed earn $5,121 less than their counterparts who start their businesses while working for an employer. While the earning penalty associated with unemployment is lower for women and non-white entrepreneurs compared to men and white entrepreneurs, women and non-white entrepreneurs have overall lower earnings than men and white entrepreneurs. Women owners experience a $8,176 unemployment penalty compared to $4,909 for male owners. These findings suggest that while entrepreneurship can be a pathway to financial stability, this pathway is imbued with structural constraints when it occurs through unemployment.

Authors

• Daniel Auguste, Babson College

• Phillip Kim, Babson College

• Todd Nobles, University of Washington