To Close the Employment Gap We Must Develop Minority Firms of All Sizes

The 2014 Census Bureau’s Annual Survey of Employers (ASE) provides valuable insights on the progress of minority-owned employer-based companies. It showed that minorities owned 18.4% of all employer based businesses. However, those firms employed just 13.7% of the small business workforce. This means there is a gap between the percentage of companies owned by minorities and the percentage of workers they employ. Until now policymakers assumed this difference stems from there being too many small sized minority businesses, and not enough larger ones. In reality, the new data shows that minority- and white-owned businesses are distributed evenly across all size distributions, from 1 to 4 workers all the way to 500 or more employees. The gap, therefore, stems from the fact that there are simply not enough minority firms within each size distribution.

For policymakers and business owners interested in job creation, the most important reference to follow is the Census Bureau’s ASE. The survey identified 5.2 million non-publicly owned employee-based firms in the American economy. Of that number, 949,318 or 18.4% was owned by minorities. The minority-owned firms employed 7.8 million workers or 13.7% of the total workforce.

When the minority-owned businesses were organized into employment size categories, the data shows an interesting outcome. Specifically, the size distribution of minority firms matched the size distribution of white-own firms (see the table below).

The table indicates that 10.6% of white-owned businesses had no employees other than the owner. The comparable figure for minorities was 9.0%. The table also showed that 51.6% of white-owned businesses had 1 to 4 employees as compared to 55.2% for minorities. In fact, there is very little difference in the employment size distribution of white-owned and minority-owned companies – even in the category of 500 or more employees the percentage for whites and minorities was .1%.
This suggests the employment capacity gap is caused by a shortfall in the number of minority firms within each employment size distribution, as opposed to there being a lack of minority businesses that are larger. This has important policy implications because many minority business advocates focus only on growing larger size minority businesses, rather than on growing minority businesses of all sizes. The new data shows the fallacy in that thinking.