How the Demographics of Entrepreneurship Has Changed

Summary

  • For one thing, there are many more entrepreneurs with Latino and Asian heritage

Entrepreneurship in the U.S. looks a lot different than it used to.

Since the mid-1990s, people with Latino and Asian heritage, both U.S.-born and immigrants, have grown to represent 24.2% and 7.3% of new entrepreneurs, respectively—more than double where they started. Immigrants overall have seen comparable gains. The Black share of entrepreneurs has ebbed and flowed, but it is higher than in the mid-1990s, while women’s share has stayed relatively consistent over time. New-business founders are also getting older, with the 55-to-64 group taking up 22.8%.

To discuss these trends, The Wall Street Journal recently spoke with Robert Fairlie,professor of economics at the University of California, Santa Cruz, who wrote a report published by the Ewing Marion Kauffman Foundation on the changing demographics of entrepreneurs.

Changing demographics

WSJ: Why do you think we’ve seen such a big increase in Hispanic-owned businesses?

DR. FAIRLIE: The Latinx population is an increasing share of the total workforce, so there is now a larger number of people who have the potential to start a business. There’s also a higher percentage of the Latinx population that are starting up businesses than there was before. I think that’s partly because things have shifted in the labor market, and people, generally, are more prone to start up businesses or venture into self-employment.

Workers are also moving back and forth between different activities a lot more than they used to. That’s especially true for the Latinx population because of the service-based industries and businesses and jobs that many are in. These businesses tend to be more fluid. They are less likely to be traditional bricks-and-mortar businesses that rarely change over time.

WSJ: Likewise, why do you think we’ve seen such a big increase in older entrepreneurs?

DR. FAIRLIE: Older workers definitely have a higher propensity to start businesses than young workers. Entrepreneurship often takes experience and financial capital, which older workers have. But what’s changed over time is the share of older workers within the total workforce. Even if they didn’t have a higher rate of starting up businesses, the share of all new entrepreneurs that are older would just naturally increase. The workforce in the U.S. is getting older.

WSJ: What does this mean for entrepreneurship? Does it change the types of businesses that will be more prevalent?

DR. FAIRLIE: I think that many of these businesses will be self-employment activity that will not result in job creation. These businesses are less likely to be high growth.

WSJ: The research found that in the past 25 years, the share of new entrepreneurs who are foreign-born has roughly doubled. Why the big increase in foreign-born entrepreneurs?

DR. FAIRLIE: I think that immigrants’ share of entrepreneurship is kind of incredible because it has grown so much. Again, it’s a similar story: The growth is primarily driven by the huge increase in the share of workers that are foreign-born. Also, foreign-born immigrants in the U.S. are more likely to be in the kinds of jobs that have been changing very fast. They’re not working as much in traditional nine-to-five jobs; rather they are doing jobs that are very fluid, like construction, small-scale restaurants, and smaller hotels. Many of these industries faced disruptions in the past few years, and so the owners tried to figure out something else they could do. If a dine-in restaurant was shut down due to Covid restrictions, for example, the owner may have started a new door-to-door food-delivery business. The data I compile and analyze from BLS capture these movements.

WSJ: Can you tell us what you’re seeing with respect to women entrepreneurs and help us understand what’s behind these trends?

DR. FAIRLIE: The relative trends for women and men have not changed much over time. The interesting demographics for trends are by race, immigrant status and age, which is where we do see changing patterns.

WSJ: How do you interpret the data on Black entrepreneurs? The figures seem relatively constant over the years. Can you explain why this may be the case and what we can glean from it?

DR. FAIRLIE: The primary reason is that the Black population has not grown over this time period.

Pandemic impact

WSJ: How do you think the overall entrepreneurship numbers were affected by the pandemic?

DR. FAIRLIE: Overall entrepreneurial activity can go up in a pandemic because there’s a large disruption to the economy, and so people move in and out of different kinds of jobs. That’s a big part of why you see this increase in the Latinx rate and the immigrant rate of entrepreneurship. Those two populations tend to work in areas where there was a lot of this kind of disruption.

Construction is a great example. Early on in the pandemic, a lot of construction was just shut down. Homeowners didn’t want someone in their house doing a kitchen remodel because they were nervous about catching the disease. Large construction projects were also put on hold. It took a while before that activity could start up again and, in the meantime, many people might have tried their hand at other forms of business activity and then come back to construction later. The data captures all of that churning, whether it’s full-time Uber drivers, or people who go from working at a huge construction firm to working through their own construction business.

WSJ: What impact do you think that will have on employment in this sector?

DR. FAIRLIE: it isn’t clear how it will impact employment in these sectors. If self-employment is included, then it might go up, but counting only wage and salary jobs, it might go down. As the economy stabilizes from coming out the pandemic, entrepreneurship rates could go down slightly.

WSJ: How has entrepreneurship been changing in more recent times?

DR. FAIRLIE: The data I track from the Bureau of Labor Statistics isn’t available yet, but a few things could be happening. On one hand, it’s possible that entrepreneurial activity has slowed down. This is a real possibility, given that the economy has bounced back from early in the pandemic when there was such a disruption, with people losing their sources of income, in many cases, and scrambling to figure out what to do. With economic conditions stabilizing, it’s possible there may be less switching back and forth from wage and salary work to self-employment.

Conversely, it’s also possible that the Great Resignation could have resulted in more people becoming entrepreneurs, for a whole different set of reasons, including the desire to partially retire. This is probably less true in the Latinx and immigrant population, but many people, especially those who are young and highly educated, have started small businesses because they want to work for themselves and not for someone else.

What’s next

WSJ: What other shifts do you expect to see down the road?

DR. FAIRLIE: I think we’re going to see an increase in diversity in all kinds of entrepreneurs and business owners. You can already see demographics changing; we’re becoming a more diverse society overall. And that’s definitely going to continue to be reflected among entrepreneurs. And that’s a good thing. It means we’re going to have new consumer products, new services and things that we didn’t have before. For example, there will be new types of restaurants and more goods and services provided for home delivery. Food delivery might decline as people return to eating in restaurants, but it is unlikely to fully return to prepandemic levels. Consumers have become used to having food and other goods delivered to their doorsteps.

The fact that we’re not completely recovered from the pandemic is also likely to impact diversity. You’re still seeing a lot of empty storefronts because of Covid, and there is a lot of opportunity for entrepreneurs to start new businesses in prime locations, such as the middle of downtown and on some of the busiest streets. Usually, you don’t see that much availability in the best locations. Availability breeds opportunity.

Ms. Winokur Munk is a writer in West Orange, N.J. She can be reached at reports@wsj.com.

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