The Importance of Growing Hispanic Entrepreneurship

May 19, 2016
By Dell Gines, Senior Community Development Advisor


Entrepreneurship helps create economic growth, jobs and local wealth, and is an important component of long-run economic competitiveness. The Hispanic population is rapidly growing in America, yet it produces fewer and smaller businesses than whites. To ensure a strong and healthy economy in the future, a specific focus on creating more and stronger Hispanic owned businesses must occur.   

Changing Demographics

Demographics in the United States have changed rapidly in recent years and are expected to continue to change in the near future. The U.S. Census Bureau projects the Hispanic population will increase from 17 percent of the U.S. population in 2014 to 29 percent by 2060.1 During this same period, the non-Hispanic white population is expected to decrease from 62 percent to 44 percent of the total population.  

Chart 1: Projected Changes in Non-Hispanic White and Hispanic Populations, 2014-60

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(Source: U.S. Census Bureau.)

Similar growth trends in the Hispanic population are seen in the seven states of the Tenth District, which is served by the Federal Reserve Bank of Kansas City. In six of the seven states in the District, census data show the Hispanic population has increased at least 20 percent from 2000 to 2010. Missouri, Nebraska and Oklahoma saw increases of more than 60 percent.

Chart 2: Growth in Tenth District Hispanic Population, 2000-10

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(Source: U.S. Census Bureau.)

Much of the national conversation about growth of the Hispanic population is related to its effect on the U.S. workforce and the dynamics of local communities. However, the same cannot be said of the importance of growth in Hispanic businesses.

The Importance of Hispanic Entrepreneurship

Entrepreneurship, defined here as the creation and growth of small businesses of less than 500 employees, is important to the U.S. economy. These businesses create jobs, local wealth and introduce innovations, all of which are important to long-run economic growth. These small businesses represent 99.7 percent of all businesses in the United States, and about 50 percent of U.S. employees work for a small business. Moreover, small businesses also play a significant role in job growth. Firms with less than 500 employees have created 74 percent of all new jobs since 2008.2

Currently, businesses owned by Hispanics lag their non-Hispanic, white-owned peers in the District and nationally in both average annual sales and number of employees. Across the District, businesses owned by non-Hispanic whites generate 3.5 times the sales on average and have 2.5[BR1]  times more employees than Hispanic-owned businesses. Hispanic businesses also are underrepresented relative to their percentage of the population. Across the District, Hispanics are 2 times less likely to own a business relative to their percentage of the population.

These differences in businesses owned by Hispanics and non-Hispanic whites will become increasingly important as the non-Hispanic white population in the United States declines and the Hispanic population increases as a percentage of the U.S. population. Growth in population that produces fewer and smaller business can cause economic and job growth to lag and reduce local wealth over time. These potential factors make growing Hispanic entrepreneurship important to maintaining the health of the U.S. economy.

Chart 3: Tenth District Average Annual Business Sales, 2012

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(Source: U.S. Census Bureau, 2012 Survey of Small Business Ownership.)

Chart 4: Tenth District Average Employees Per Business, 2012

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(Source: U.S. Census Bureau, 2012 Survey of Small Business Ownership.)

Chart 5: Tenth District Hispanic Population and Business Ownership

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(Source: U.S. Census Bureau, 2012 American Community Survey Population Estimates and 2012 Survey of Business Ownership.)

Supporting Hispanic Entrepreneurship

There are many ways to support Hispanic entrepreneurship both nationally and in local communities. This section will focus on the use of one strategy and one tool. One strategy that is useful at the local level is the creation of a “Grow Your Own”  entrepreneurship-based style of economic development. Grow Your Own strategies focus on improving local entrepreneurship resources, strengthening business relationships, improving small business policy and strengthening entrepreneurial culture to produce more and larger businesses. This strategy can be effective for growing Hispanic entrepreneurs because it allows each community to analyze what support currently exist for entrepreneurs, identify support gaps and work in culturally specific ways to build a more dynamic entrepreneurial community. Learn more about the Federal Reserve Bank of Kansas City's resources on Grow Your Own strategies.

Another tool for communities is the Federal Deposit Insurance Corp.’s “Money Smart for Small Businesses” curriculum, which is free and available in both English and Spanish. Money Smart for Small Business is an instructor-led curriculum that provides a practical introduction to 13 topics related to starting and managing a business. Money Smart for Small Businesses was developed in partnership with the U.S. Small Business Administration and designed to be a high-quality entrepreneurship training curriculum for local communities. 

Conclusion

Growth in Hispanic entrepreneurship will be increasingly important to the economy of the United States as the Hispanic population grows. Improving local, regional and national support for Hispanic-owned businesses is important to increasing long-run economic growth and competitiveness, increasing jobs and improving local wealth.    

[1] Colby, S.L., and J.M. Ortman. (2015, March). Projections of the Size and Composition of the U.S. Population: 2014 to 2060. Retrieved from U.S. Census Bureau: http://www.census.gov/content/dam/Census/library/publications/2015/demo/p25-1143.pdf 

[2] U.S. Small Business Administration.