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Regional Matters

March 18, 2021

How Many Businesses in the Fifth District are Minority-Owned?

Introduction

Engagement with diverse businesses is an important part of the Richmond Fed’s activities. As we continually gather real-time economic information through surveys and direct conversations with business leaders, we want to make sure we are capturing a range of perspectives that represent the experience of firms across our district. As part of our community engagement activities more broadly, we also support other organizations’ efforts to promote diverse and inclusive business environments in their communities. Moreover, in our day-to-day operations, the Bank works with diverse suppliers to help us carry out our work.

The health of minority-owned businesses in particular has gained increasing attention over the past year alongside broader conversations about racial equity and as the COVID-19 pandemic in many ways hit minority populations harder. This article presents baseline data on the landscape of minority-owned businesses in Fifth Federal Reserve District states prior to the COVID-19 pandemic. These business owner data provide a reference point for business outreach as well as important context for other incoming data and anecdotal reports of how minority-owned businesses are faring.

Data on Business Owner Demographics

Currently, the most comprehensive data sources for understanding business owner demographics are the Census Bureau’s Annual Business Survey (ABS) and a new annual product from the Census Bureau called the Nonemployer Statistics by Demographics (NES-D). The NES-D release in December 2020 filled a gap in business ownership data. In the past few years, the ABS has stood alone, capturing data only on employer businesses—i.e., firms with paid employees. The most comprehensive data on nonemployer businesses (firms with no paid employees) came from the Census Bureau’s Survey of Business Owners and Self-Employed Persons (SBO), which was last collected in 2012 before the survey was discontinued. Nonemployer businesses are an important component for understanding the business ownership landscape. Although they accounted for only 3 percent of total business receipts in 2017, they made up about 80 percent of total businesses in the United States, and they have a much larger share of minority owners than employer firms do (33 percent versus 19 percent).

The ABS and NES-D provide information on selected economic and demographic characteristics for businesses and business owners by race and ethnicity (along with sex and veteran status), and the universe of firms includes businesses with receipts of $1,000 or more. Business ownership is defined as having over 50 percent of the stock or equity in the business, and minority-owned businesses are defined as firms classified as any race and ethnicity combination other than non-Hispanic and white.

Minority Business Ownership in Fifth District States

The chart below shows the number of minority-owned businesses, broken out by employer and nonemployer firms, in Fifth District states in 2017 (the most recent concurrent data available for the combined ABS and NES-D). It is evident that nonemployer firms make up the lion’s share of total businesses. In the previous section, we mentioned that the share of nonemployer businesses nationally was around 80 percent (nonminority and minority-owned combined). For minority-owned businesses specifically, the share of nonemployers is higher, at around 90 percent of total minority-owned businesses nationally and in most Fifth District states—in other words, minority-owned firms are more likely to be nonemployer firms.

The next chart presents the number of minority-owned businesses as a share of total businesses in Fifth District states and the United States. At the national level, minority-owned firms accounted for 30 percent of all classifiable businesses in 2017. (For a business to be classifiable by demographics, it must have at least one owner with 10 percent or more stock or equity in the firm. Classifiable businesses amount to 98 percent of total businesses at the national level.) Across the Fifth District, the respective minority firm shares vary considerably in magnitude, with the District of Columbia at 48 percent and West Virginia at 5 percent. The large difference between these shares is not fully unexpected, however, because the demographics of the two places are just as drastic. Looking at population data from 2017 shows that minorities accounted for almost 64 percent of the population in the District of Columbia, whereas minorities only accounted for about 8 percent in West Virginia.

Although minority firm shares are correlated with minority population shares, the chart also shows that firm shares are lower than population shares across the board. In some Fifth District states, such as North Carolina and South Carolina, this difference is particularly large.

This begs the question: How does the underlying race and ethnicity composition of firm ownership compare to the demographic composition of the population? To answer that question, we will dig a little further into the data and break the minority grouping into the following race and ethnicity categories: Non-Hispanic White, Black, Asian, and Hispanic. We show the ownership shares for all businesses, employer firms, and nonemployer firms, and compare them to their respective population shares.

Percentage Share of Population and Firm Ownership by Select Race and Ethnicity, 2017

StateDistrict of ColumbiaMarylandNorth CarolinaSouth CarolinaVirginiaWest VirginiaUnited States
Non-Hispanic White
Population36.550.763.063.661.792.060.6
Total Firms51.558.275.476.468.194.769.6
Employer65.675.486.388.178.494.480.7
Nonemployer48.754.773.174.065.894.867.1
Black
Population45.929.921.527.019.24.012.7
Total Firms35.925.814.516.714.12.210.1
Employer13.56.73.73.33.90.72.3
Nonemployer40.329.616.719.516.42.511.8
Asian
Population4.16.52.91.56.40.85.6
Total Firms6.29.74.13.110.71.98.2
Employer14.513.76.05.912.93.410.1
Nonemployer4.58.83.72.510.21.57.8
Hispanic
Population11.010.19.45.79.31.318.1
Total Firms7.67.96.13.97.91.213.0
Employer5.03.93.12.03.91.05.9
Nonemployer8.18.76.84.38.81.314.5

 

Some of the key takeaways from the table include:

  • Black and Hispanic-owned firms are more likely to be nonemployers in all Fifth District states and in the United States overall. In contrast, Asian and non-Hispanic white-owned firms are more heavily concentrated in employer firms.
  • In most cases, black and Hispanic-owned firms are underrepresented when compared to their share of the population. Asian and non-Hispanic white-owned firms, however, tend to exceed their share of the population.
  • Differences in black-owned business and population shares account for much of the overall minority share differences in Fifth District states shown in the previous bar chart. However, at the national level, differences in Hispanic business and population shares largely explain the minority share difference.

Where Does This Leave Us?

The ABS and NES-D are rich data sources for understanding the landscape of minority-owned firms. This article only scratches the surface. For instance, data are available at the metro area level that show variations within each state. Industry breakdowns and firm size (by revenue and number of employees) are also available. In a future article, we will dig into these data, along with other more recent, albeit less comprehensive, data sources like the Fed’s Small Business Credit Survey that provide insight into how minority-owned businesses have fared during the COVID-19 pandemic.

Interested in reading more articles like this one? Check out Our Regional Focus, where you can find additional research and analysis on small business, regional differences, racial inequality, and other pressing economic issues that affect our communities.

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