Abstract: Constraints, Opportunities, and the Decision to Pursue Business Ownership: Analysis of Industry Choice among African American Owners of Small Businesses

Timothy Bates

Abstract

The choice between wage work and being a small business owner is shaped by constraints and opportunities. In the case of minorities, historical understanding of why the entrepreneurial path is chosen is muddled by disagreement over the relative importance of constraints pushing workers down the entrepreneurial path, versus opportunities pulling entrants into firm ownership. This study examines a natural experiment: in the late 1960s/early 1970s, specific constraints historically limiting entrepreneurial alternatives for minorities changed dramatically. Findings indicate that reduced constraints had little impact upon entry rates, but the types of businesses formed changed substantially. Economists view the decision to enter into business ownership as an exercise in freedom of choice made on the basis of one's preferences. What they often fail to appreciate is that entry decisions are made in specific socio-economic-political contexts and that changes in the prevailing context alter entry decisions. Genuine freedom of choice is achieved by alleviating barriers, thus widening the options available to aspiring entrepreneurs. Faced with fewer constraints, blacks since the 1960s have often chosen to abandon lines of business offering low remuneration, choosing instead to enter into higher yielding fields where firm creation requires investment of capital by owners possessing considerable expertise.