Affirmative Action Programs and Business Ownership among Minorities and Women

Affirmative action programs are commonly used as a means to level the playing field for minorityand women-owned firms in public procurement markets, and therefore may be a positive factor in business entry and survival. To the extent that affirmative action programs also apply to traditional labor markets, however, they may also alter the opportunity cost of starting a business. We utilize the elimination of affirmative action in California and Washington through voter initiatives to identify the effect of affirmative action on minority and female selfemployment rates. We find some evidence of modest increases in self-employment among minorities and women in both California and Washington after the elimination of affirmative action. This suggests that eliminating affirmative action may have lowered the opportunity cost of starting a business by restricting opportunities in the traditional labor market. 1 We thank Bill Bradford, Tim Lohrentz, Caitlin Myers, and participants at the Economic Opportunity in California: The Labor and Employment Impact of Prop. 209 symposium at UCLA for helpful comments. Funding for this research was provided by the Insight Center for Community Economic Development and Ford Foundation.