Microeconomics

While surveying what new was being written by economists, I came across this written by blogger Steven Teles. I found it interesting and thought I'ld share.

A number of folks commented...essentially asking why African-Americans don't run corner stores and coffee shops. I don't know much about coffee shops, but let's take three categories of small businesses that immigrants tend to concentrate on: corner shops, dry cleaners, and doughnut shops. What do all these have in common? First, they are very low margin enterprises. They are only profitable if you can drive hourly wages down very low. This is possible if you engage in what I call..."self-exploitation." These are enterprises that work mainly if you can make yourself and your family the labor pool, and make up for low average hourly wages with extremely long hours, both on the part of the owner and their family (whose labor is not directly compensated and not taxed). These type of enterprises don't work for African-Americans for two reasons. First, their reserve wage is above the (very low) effective hourly wage that these enterprises provide. Second, given their family structure, most African-Americans don't have recourse to uncompensated family labor. There's also a third factor, which is access to capital--many of these enterprises are originally capitalized through rotating capital arrangements, which depend on the high level of social trust that comes from fairly tight-knit immigrant communities. A more speculative fourth factor is that these enterprises often work because consumption among the relevant immigrant groups is often highly suppressed--closer to the level of their countries of origin than the US norm.

One way of summing up the reason that African-Americans aren't found in substantial numbers in these sorts of niches is that they are so thoroughly assimilated, in their expectations of return on labor, family structure, individualism, consumption patterns, etc. One doesn't need to explain the phenomenon under examination by recourse to the peculiar character of African-Americans--in fact, it is the phenomenon of low-margin immigrant businesses that has more of a cultural grounding. This can be seen in the fact that very few second-generation immigrants are found in such jobs. They "work" in providing an economic bridge into the American market economy, but they are almost always transitional--the second generation moves into the mainstream economy, typically through education. This is true both in Britain and the United States.

No real point on my part. Just an interesting observation of social phenonema.