(Illustration by iStock/bagotaj)
Those who are released from prison often face difficulty finding a job. This problem, in turn, generates further difficulties for policy makers: If people exiting the criminal justice system can’t support themselves through work, they will have a hard time regaining a place in society and may be more likely to recidivate.
Applicants who have a criminal record are often unable to land a position due to persistent employer discrimination, research shows, and those who can’t find work are often reincarcerated within a few years. This problem especially affects Black former prisoners, who already face discrimination from employers.
A new paper looks at an option some people who leave prison take to avoid employer discrimination: entrepreneurship. The authors—Kylie Hwang, an assistant professor of management and organizations at Northwestern University’s Kellogg School of Management, and Damon Phillips, a professor of management at the University of Pennsylvania’s Wharton School—found that formerly incarcerated Black individuals are more likely to “pursue entrepreneurship due to the discrimination they face from employers” and that those who do so tend to have better outcomes. Going into business for themselves may seem a riskier path, but on average they earn more than their peers who are employees and are less likely to reoffend.
To examine the work status of former prisoners, Hwang and Phillips used data from the 1997 US National Longitudinal Survey of Youth, which went on for 15 years. The researchers also analyzed data from the National Employment Law Project on ban-the-box laws in states across the country. Such laws forbid employers from asking job applicants questions about past felony convictions during early rounds of interviews. Since such laws were gradually passed and implemented over the 15-year period, the legislative expansion enabled the researchers to use it as a natural experiment to see how those leaving prison fared depending on whether the place where they lived did or didn’t have this antidiscrimination law in place at the time of release.
Hwang and Phillips found that the march of ban-the-box laws across states and cities correlated with a lower rate of entrepreneurship for Black individuals who had been incarcerated, indicating that they were not experiencing as much employment discrimination and were able to get hired into jobs with less trouble once such laws passed. (The researchers found this effect only when looking at Black individuals, not other demographic groups.) This finding indicated that entrepreneurship is the preferred choice of those who experience discrimination in hiring, not necessarily because they prefer to be self-employed or feel motivated to start a business.
“We’re able to disentangle how much of the labor market discrimination pushes these people into entrepreneurship,” Hwang says.
Being an entrepreneur is rarely easy, with access to funding a major issue for anyone who starts a business. Entrepreneurs in this post-prison group face significantly greater barriers than others as they battle for limited amounts of seed capital available to low-growth, small-scale businesses that don’t require specialized skills, Hwang says. But the data show that these obstacles aren’t as great as the employment discrimination these individuals face after they leave prison.
The sorts of new businesses that the study examines are not typically VC-funded tech start-ups or even companies that qualify for bank loans, said Howard Aldrich, a professor of sociology at the University of North Carolina-Chapel Hill who studies entrepreneurship. Instead, newly released individuals often start what he calls “mundane, ordinary, everyday business opportunities that have low barriers to entry, often are done as solo endeavors, and allow people to capitalize on whatever business experiences and social connections they might have,” even if they do not have a college degree or perhaps even a high school diploma.
These businesses get their funding from savings, credit cards, or small loans from family and friends, outside the formal system of business credit. They are in many ways the prototypical American business, since only 20 percent of the hundreds of thousands of businesses founded each year have any employees, he said.
“I was delighted to see that Kylie Hwang and Damon Phillips have called attention to the social and economic significance of such businesses in enabling formerly incarcerated individuals to get a second chance in the labor market,” Aldrich says.
Find the full story: “Entrepreneurship as a Response to Labor Market Discrimination for Formerly Incarcerated People” by Kylie Hwang and Damon Phillips, American Journal of Sociology, forthcoming.
Read more stories by Chana R. Schoenberger.