Why the Rate of Black Business Ownership is Going Up

The number of Black small-business owners was 28% higher in the third quarter of 2021 than it was pre-pandemic.

Why the Rate of Black Business Ownership is Going Up

By Sharon Lurye, US News

The city of Pittsburgh has historically struggled to lift up Black businesses, having the lowest rate of Black business ownership of any large city in the U.S.

But around 2020, things started to change.

In a normal year, the local Urban Redevelopment Authority gives out around 30-50 loans. In 2020, it gave out over 350 loans – and almost half went to Black-owned businesses.

Pittsburgh is part of a larger trend. African American business owners were one of the hardest hit groups at the beginning of the pandemic, with the number of self-employed people dropping 31% from the first quarter of 2020 to the second, according to census data compiled by Robert Fairlie, a research associate at the University of California in Santa Cruz.

Black Business Ownership Tumbled at Pandemic’s Start

But now, this group is making a comeback. Just over 1.2 million African Americans were self-employed in February 2022, compared to slightly under 1.1 million in February 2020. Another study from the website domain company GoDaddy found that Black owners have accounted for 26% of all websites created for new businesses since the pandemic began, compared to 15% before.

Number of Self-Employed Black People

The gains are greater than what other demographic groups have seen: According to Fairlie’s analysis of the census data, the number of Black small-business owners was 28% higher in the third quarter of 2021 than it was pre-pandemic, compared to 19% for Latino business owners and 5% for white and Asian business owners.

“I’m definitely seeing it here on the ground in Pittsburgh. … The narrative is not only shifting, but our actions and outcomes are starting to trend upward as well,” said Diamonte Walker, deputy executive director of the Urban Redevelopment Authority of Pittsburgh, which is investing $5 million into minority- and women-owned businesses.

It’s too early to say how many of these self-employed people will go on to create larger businesses and employ others as well. Economists suggest interpreting the numbers cautiously, as self-employment includes not just small-business owners but also gig workers like Uber drivers. Still, this trend gives hope that the lofty promises that companies made after social justice protests last summer to invest more in the Black community resulted in real, tangible changes.

“Healthy Black businesses are the key to healthy Black communities,” Walker said.

A Pandemic and a Racial Reckoning

The growth in Black self-employment has several potential reasons. First, African American business ownership was also already growing prior to the pandemic.

The coronavirus pandemic then led to a huge boom in small-business formation in general, as people quit their jobs and realized they could be their own boss. According to government data compiled by the nonpartisan data center USAFacts, new business applications increased more in 2020 than they had in the past 15 years.

“This is not a weird coincidence. There’s a lot of demand for goods and services, and a lot of people are realizing, ‘I can do that without having to work for anybody else,’” said Ron Hetrick, an economist at Emsi Burning Glass.

Hetrick also pointed out that the counties with the largest increases in business formations in the past two years all have significant Black and Hispanic populations: Chicago (Cook County), Detroit (Wayne County), Los Angeles, Houston (Harris County) and Miami-Dade County.

“The good news of this whole thing is, when you see business formations occurring in very ethnically diverse populations, then that would typically suggest that you would start to see increased hiring from these populations as well,” he said.

But why would African Americans, in particular, have seen a greater growth in self-employment than other groups? One potential reason is that the widespread protests over the killing of George Floyd in the summer of 2020 have led to greater awareness of social justice concerns, leading more governments and businesses to pledge to increase their contracts with Black-owned businesses.

“There have been two changes of late: one is the pandemic, but there was also the racial reckoning,” said Erica Groshen, a senior economics adviser at Cornell University’s School of Industrial and Labor Relations.

Support from the government may also have helped spur new businesses in the Black community. One study of eight states, published by the National Bureau of Economic Research, found a correlation between stimulus checks and new businesses in Black neighborhoods.

Initially, government assistance bypassed Black business owners. A small-business survey conducted by the Federal Reserve System, conducted in fall 2020, found that while 79% of white-owned firms got all the funding they asked for when they applied for credit from the Paycheck Protection Program, only 43% of Black firms did. What’s more, Black firms that applied were five times as likely as white firms to get no PPP funding at all.

However, subsequent rounds of PPP funding focused more on helping small businesses, self-employed people and underserved communities. A study published in January by Robert Fairlie and Frank Fossen found that while loans in the first round of the program were disproportionately less likely to go to minority communities at first, later rounds reversed that trend.

“My guess is that the revised PPP program helped … but also more racial inequality awareness by customers and larger businesses seeking suppliers,” Fairlie said.

‘It Signals What’s Possible’

Despite these gains, there’s still very far to go. One Brookings Institution report estimates that 800,000 more Black-owned employer firms are needed to reach equity. Moreover, just starting a business does not guarantee that it will survive in the long term.

“There are a lot of businesses that are starting, but how do we help them sustain?” asked Tracey Clark Jeffries, a Black business owner herself as the CEO of Capital Consulting Services in St. Louis.

Jeffries has noticed that many businesses in her community are open – but struggling. For example, she’s heard from restaurant owners on Martin Luther King Jr. Boulevard in St. Louis that they’re seeing fewer customers as more people work at home now.

“What Black-owned small businesses need is a more structured model that can help them sustain over a period of three to five years,” Jeffries said.

Still, Jeffries says her own business has actually gotten stronger since the pandemic. She pivoted to advising organizations on how to make better use of office space they didn’t need anymore with a remote workforce, and she landed some lucrative state contracts as well.

And just seeing new businesses start up can have a powerful impact in a community.

“You see a glaring wealth gap between Black people and white people. That disparity is felt not only on an economic level but on a psychological and emotional level,” said Walker of Pittsburgh’s Urban Redevelopment Authority. “As these Black businesses start to thrive, it signals what’s possible.”

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