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Left Behind? The New Generation of Latino Entrepreneurs

Kauffman researcher Emily Fetsch examines the growth of Latino-American entrepreneurs and the particular challenges they face.

Latinos are steadily emerging as a growing influence on American society and its economy. Today, one in six people in the United States is Latino. The U.S. Census Bureau estimates that by 2060, one-third of Americans will be Latino. Accordingly, Latino Americans will play an increasingly important role in the American economy. By 2020, an IHS Global Insight study estimates that Latinos might account for 40 percent of U.S. job growth

The number of Latino American entrepreneurs has risen substantially in the past years. In the course of two decades, Latino entrepreneurs have tripled and, by 2012, nearly one-in-ten Latinos were engaged in entrepreneurship. This resulted in more than 3 million Latino owning small businesses in 2013. According to the 2013 Kauffman Index of Entrepreneurial Activity, the representation of Latinos as new entrepreneurs is driven by their increasing population, as well as their rising rate of entrepreneurship.

Despite the impressive growth of Latino American entrepreneurs, there are some problems still affecting this growing demographic, including lack of assets, high failure rates, and being more likely to be low-income despite entrepreneurial efforts.

First, Latinos have lower median incomes compared to the median household income of all Americans.  In addition, the median family wealth for Latinos is one-tenth of the median wealth for white Americans. The median Latino family has $13,730 in wealth, compared to $134,230 for the median white family. Finally, less than half of Latinos are homeowners, while the national average is 65 percent.  This lack of capital and assets can impair an entrepreneur’s ability to invest in and grow a startup business.

After Latino entrepreneurs overcome the financing barrier to start a business, they still face additional challenges. First, Latino-owned firms are more likely to have higher failure rates. In addition, they are more likely to be low-income than are entrepreneurs overall. Latinos comprise of 17 percent of the low-income population and nearly 24 percent of low-income entrepreneurs. The concentration of low-income entrepreneurs among Latinos results in an income disparity among white and Latino entrepreneurs. In 2012, Latino American entrepreneurs earned 43 percent less than their non-Latino counterparts.

A recent report by the Goldwater Institute discusses the financial disparity between Latino entrepreneurs and entrepreneurs overall: 

“Though clearly the second-most dominant group in terms of total number of low-income entrepreneurs, they are only the third-largest group in the general population. In fact, the share of low-income entrepreneurs that are Hispanic is over 2.5 times the share of Hispanics in the general population. Thus, on average, any public policy that inhibits entrepreneurship opportunities for low-income workers by definition will likely burden Hispanics more heavily than other ethnic or racial categories.”

The concentration of immigrants among Latinos helps explain the propensity toward low-income entrepreneurial ventures. Among U.S. Latinos, thirty-five percent are immigrants. In 2012, one-in-ten Mexican immigrants were self-employed which, considering the potential barriers facing the immigrant community, including language barriers and access to financing and capital, is astounding. A Kauffman study has found that immigrants are almost twice as likely to be entrepreneurs compared to native-born Americans. However, nine-in-ten immigrant entrepreneurs are low-income entrepreneurs.

Latino American entrepreneurs will help define the entrepreneurial landscape in the decades to come. Entrepreneurship support organizations would benefit from further investigation to better understand what attracts Latino Americans to entrepreneurship. In addition, more examination is needed to address the specific challenges facing Latino American entrepreneurs, including the lack of capital, high failure rates, and the likelihood of being low-income entrepreneurs.