Black Unemployment Is Still High and We Need Black Entrepreneurship to Address It

Kylie Patterson, NLC New Jersey

The jobs numbers were just released and the U.S. is officially back in the black. We are doing so well economically that the Federal Reserve Board has increased interest rates five times since almost zeroing out the rate following the 2008 recession. The stock market continues to rise, with some exceptions, month over month. However, these numbers mask another reality in America — the Black and Latino unemployment rates are persistently greater than the unemployment rates for Whites. In the newest data from the Bureau of Labor Statistics, the White unemployment rate was 3.6% compared to 7.3% for Blacks.

Economist Algernon Austin, in The Color of Entrepreneurship, argues that if minorities experienced full participation in business ownership, people of color would own 1.1 million more businesses with employees and add 9 million jobs to the American economy, many of which would be filled by people of color.

Just how great is the challenge when looking at black small business and entrepreneurship?

Of all small businesses, minorities own just 17.5% of businesses although they comprise 40% of the population. Additionally, of the businesses owned by minorities just 4.2% of those businesses have paid employees compared to white-owned businesses where 21.75% have paid employees.

Looking at the data and the rate of growth of black businesses, especially those with employees, it seems that the current investments and policies are not working to their greatest benefit. Could other interventions be considered?

It is true there are contracting mechanisms developed to support the growth and sustainability of minority and women owned firms, such as the 8(a) program, which allows for federal agencies to award prime contract awards. However, this certification is time-limited to nine years — meaning if a business has yet to fully capitalize on their preferential certification in that time frame they cannot access it again — unless they partner with another 8(a) certified business. Moreover, according to a recent study by the University of Maryland Center for Public Policy and Private Enterprise, small business set asides, like the 8(a) program, may create a perverse incentive not to grow nor is there a correlation to job development.

There are a multitude of reasons for the underdevelopment of minority-owned businesses, including reduced access to capital, general customer discrimination and bias, and competition. These issues, however, are not new and it is clear that we need new policies to support the development and growth of minority businesses.

New and bold options should be considered to ensure that as the economy continues to grow, people and business owners of color are not left behind. One of the challenges facing businesses and people of color is lack of wealth. According to the Economic Policy Institute, the median wealth for a Black household is $11,030 compared to $134,230 for White households. This lack of wealth means that entrepreneurs of color, without the ability to invest their own wealth, must look to outside sources such as banks and venture capitalists to support their work. In consideration of this, an option to consider is providing incentives, such as tax credits, to investors to provide venture capital to minority businesses.

Another option would be creating programs similar to the 8(a) certification to support the ramping up of mid-sized firms — those that have employees and revenues over $250,000. I spoke with co-founder and President Lawrence Hibbert of BCT Partners, a national minority owned consulting firm with more than 50 employees. He offered that as a mid-sized business he no longer faces the challenges of a solo-entrepreneur, however at this size there are few resources available to support his business’s continued growth. “It is difficult getting here and there are few resources to support maintenance and scaling.”

Another option to support black entrepreneurship that doesn’t rely on policy change — is changing behaviors at America’s largest corporations and anchor institutions. There are multiple examples of companies making commitments to source from minority firms. Yet, only a handful of those that spend billions annually are members of the Billion Dollar Roundtable, which spend at least $1 billion with minority and women-owned suppliers. This type of behavior shift would require leaders from across the United States to take a stand and mandate that their institutions make a commitment to minority firms across categories, including professional services.

Today’s business buzz words are entrepreneurship, technology, the “gig” economy and co-working spaces. Perhaps for this reason, we are seeing a wellspring of funding and opportunities for one-person businesses. But where are the opportunities for growing established black businesses?

As we seek to grow this economy, it is time to invest in black entrepreneurship through policy and behavior change at all levels, from the person on the street to the c-suite.

Kylie Patterson is an economic development professional and works at the intersections of race, economic development and strategy. Follow her on Twitter @kyliepatt.