In addition to ongoing and well-documented racial disparities in health outcomes, household wealth, and income and earnings, business ownership represents an important field for policymakers and researchers interested in promoting equitable access to opportunity across racial lines. Policies aimed at closing the racial ownership gap in small businesses can take a number of different forms — including targeted loan programs, grants, and training and mentorship programs. However, it may also be possible for programs aimed at incentivizing small business development more generally to have the effect of widening or closing the racial gap in small business ownership. Ini Umosen, a 6th year PhD student in UC Berkeley’s Economics department, is investigating this through an analysis of the racial impacts of a Chicago program that provides grants to small business owners.
Umosen’s focus on Chicago offers a rich opportunity to examine how small business policies can impact business owners differently based on their race. In part, this is because there are large racial disparities in who owns small businesses in Chicago: despite making up only 36% of the population, white individuals own 75% of small businesses. The city also provides a good setting for this research because of its long-running Small Business Improvement Fund (SBIF) program: since the early 2000s, the program has offered grants to small business owners in designated districts throughout the city to offset costs associated with running and improving their businesses. The city maintains ample data on the program, offering Umosen a detailed view of how the program has impacted businesses differently along racial lines.
“The SBIF is a program that Chicago uses to give grants to relatively small businesses who want to fix their buildings, make repairs, to improve the look of things,” Umosen described. “The idea is to help businesses and property owners beautify where they are, thus also increasing the property values of the surrounding neighborhood.” In 2021, the city expanded the program dramatically and changed the application process to make the program more accessible to those with fewer resources and less access to credit.
Umosen is particularly interested in the distributional consequences of the program. “While $60 million was earmarked for the grant over three years, only about a third of the money was actually awarded, according to the data portal. That kind of speaks to this idea that maybe businesses differ in their knowledge about this kind of program, or ability to benefit from these grants. Are there disparities in being awarded this grant that may drive some of the gaps we see in business ownership by race and gender?” Ini hypothesizes that receiving a SBIF grant might boost the chances of survival among existing businesses, by increasing consumer demand, business liquidity, or freeing up funds for additional investments. “If awardees are more likely to be women or minorities, this program could be one way to close that gap. In the alternative case, it has the potential to kind of make these gaps worse.”
Umosen’s project comprises two main stages. In the first stage of her project, she is working to identify what disparities exist in take-up of the program, and compare these gaps to the overall distribution of business ownership. In the second stage of the project, she will leverage a quasi-experimental approach to estimate the impact of receiving a grant from the program on a business and its neighbors. Ini is planning to use business permit data to measure how enterprises stay in business, or expand to new locations. She’s also searching for data that will allow her to measure effects on employment and profits, and is considering using a platform like Yelp to incorporate measurements of customer sentiment about recipient businesses.
For both stages, she’s relying on Chicago’s open data portal to access a few different datasets. “One is a data set of all kinds of grant awardees over the lifecycle of the program — that’s about 2,000 projects — which tells me who’s actually winning these grants. The next is a set of all business licenses that have ever been granted in Chicago — that’s about a million rows — which tells me who the universe of business owners are, so I can see what share of these owners are actually getting the grants.” The last piece of Umosen's data maps the city's tax increment funding (TIF) districts - administrative units where funding is raised for development projects, including SBIF program grants. By combining this geographic and administrative data, Umosen can better understand how businesses and their owners are distributed throughout the city, how racial and gender gaps in entrepreneurship vary across geography, and how funding is allocated across administrative districts.
While she is still in the early stages of her analysis, early data suggests that white people, and men, while overrepresented among business owners, are underrepresented among SBIF grantees. Umosen believes that some of this has to do with where the businesses receiving the grants are located. “It is usually the case that, to become a TIF district, an area needs to show signs of disinvestment, deterioration, declining property values, et cetera. The underrepresentation of white business owners among SBIF awardees may be driven in part by non-white owners being more likely to locate their businesses in areas that suffer from disinvestment, and thus more likely to have a business in a TIF. I'm still working on the data wrangling necessary to see if this hypothesis is the whole story, but my guess is that it's likely a significant part of it,” Umosen described.
There is limited evidence on which policy tools are most effective for closing racial gaps in small business development and ownership in local communities – and it is not always clear how initiatives aimed at spurring entrepreneurship impact different racial groups differently. Umosen’s work represents an important new contribution in this field, with the potential to both illuminate how local small business policies play out on the ground and inform how policymakers could improve their design to more effectively promote equity.