And Finally, The Minority Household – Minority Business Connection by Dr. Fred McKinney, Tuck MBP at Dartmouth University
In September of 2017, the Census Bureau released a report showing that African American household income was the only major ethnic group that experienced a decline in inflation adjusted income since 2000. In 2016, Median African American household income was $39,000 compared to median household income of $47,000, $65,000, and $81,000 for Hispanics, Whites. and Asians, respectively
The question of why these differences continue to exist is a subject of study of a small army of sociologists and economists, so I will not jump into this debate. But I wonder how much of the explanation is related to the other fact that minority businesses also tend to be smaller than businesses owned by whites. According to the Minority Business Development Agency, The median gross receipts of Black firms with employees was $947,905 compared to $1,321,717, $1,304,571 and $2,337,983 for Hispanic owned, White owned and Asian owned businesses with employees, respectively.
As statisticians like to remind us, correlation is not causation. In fact, the connection between household income and business income could go in either direction or in both directions. Lower household income leads to lower levels of wealth accumulation and lower levels of wealth restrict the size of new ventures. It is also true that smaller businesses generate less income for their owners. The direction of the connection is perhaps less important than the reality that Black and minority entrepreneurs continue to own significantly smaller businesses and earn less income in lower-income communities.
In addition to these connections, lower incomes of Black and Hispanic households and businesses are a further restriction on businesses. Black and Hispanic consumers in most urban communities are underserved in many industries, from food stores, banks, general retail, healthcare and other services, because the grass is greener in other communities.
The solution to these problems begin with an acknowledgement that there is a problem. After this acknowledgement, the solution might require a Marshall Plan-like response. It is obvious because of the “stickiness” of this problem that expecting these differences to disappear on their own is unrealistic. For decades, we have under-invested in urban communities. I think it is time for this to change.
In your service,