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Affirmative action programs are commonly used as a means to level the playing field for minority- and 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 self- employment 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.

Affirmative action programs and business ownership among minorities and women