Entrepreneurship rates are high among people with a prison record. Far from exhibiting a latent sense of entrepreneurialism, however, this shows the difficulties ex-convicts have in finding more regular employment.
Researchers at Kellogg School of Management recently investigated how incarceration affects entrepreneurship. They aimed to find out how much labor-market discrimination pushes formerly incarcerated individuals towards starting their own businesses and whether this choice benefits them.
Higher rates
The study found that people with a history of incarceration are 40 percent more likely to become entrepreneurs than those without. Generally, this decision works well for them: these entrepreneurs earn higher incomes and are less likely to return to prison compared to those who work for companies.
However, in areas with less discrimination against people with criminal records, fewer formerly incarcerated individuals, especially Black individuals, choose entrepreneurship.
This research is the first to show that entrepreneurship among the formerly incarcerated is a response to discrimination in the job market.
“Most studies focus on employment after incarceration, not entrepreneurship,” the researchers explain. “And those that do look at entrepreneurship often link it to personality traits like risk-taking.”
Rates of entrepreneurship
The study used two main data sources. The first was the U.S. National Longitudinal Survey of Youth 1997, which tracks the lives of nearly 9,000 people born between 1980 and 1984. This survey provided basic demographic information and details about their employment, youth detention, and adult incarceration.
The second data source was from the National Employment Law Project, detailing local implementation of “ban-the-box” policies. These policies, also known as the Fair Chance Act, remove the check box on job applications that asks about criminal history, delaying this inquiry until later in the hiring process. As of 2019, these policies have been adopted by public employers in 35 states, Washington D.C., and 170 cities and counties.
The researchers found that formerly incarcerated individuals are more likely to start their own businesses than those without a record. The average non-incarcerated person has a 9 percent chance of becoming an entrepreneur, while a formerly incarcerated person has a 13.3 percent chance. This link holds even after considering various demographic factors.
Lack of alternatives
The study also found that a lack of other opportunities pushes formerly incarcerated individuals into entrepreneurship. In places with ban-the-box policies, where getting a job is easier for those with a record, fewer people choose entrepreneurship, particularly among Black individuals who face the highest levels of discrimination.
Despite the limited opportunities for this group, entrepreneurship can be a good option. White entrepreneurs with a history of incarceration earn 5 percent more per year than white employees. For Black entrepreneurs, the benefit is even larger, at 12 percent.
Entrepreneurship not only provides higher incomes but also reduces recidivism. Being employed by a company lowers the one-year recidivism rate by 55 percent compared to being unemployed, while entrepreneurship lowers it by 64 percent.
These benefits go beyond the numbers, including better job satisfaction and a sense of meaningful work, especially when compared to the menial jobs typically available to those with a criminal record.
However, entrepreneurship is not for everyone. Many ventures fail even in the best circumstances. More must be done to help formerly incarcerated individuals find stable and fulfilling employment.
With 1.8 million Americans currently imprisoned, reentry remains a significant challenge. The social consequences of not successfully reintegrating these individuals into society are severe.
