40 years after the passage of the Civil Rights Act, residential
and commercial segregation remain a fact
of life in America.
Due to prevailing institutional, residential and social segregation,
demographic groups that are generally in the minority – African-Americans,
Asian-Americans, Hispanics and immigrants – predominate
within urban central cities. And yet in many of those same areas,
a majority of business owners are white.
White entrepreneurs in central cities face the novel experience
of working in a social context in which they are racial minorities,
while at the same time they are a part of the dominant coalition
of firm owners and are members of the majority within the larger
Entrepreneurs in urban contexts find that they must build relationships
across racial and ethnic boundaries. But “tokens” – numerical
minorities in organizations or contexts dominated by the majority – face
considerable challenges in doing so. That’s because cross-race
relationships, within and outside of organizations, remain relatively
unusual. In his 1987 study of core discussion networks, Harvard
sociologist Peter Marsden found that only eight percent of Americans
reported any racial or ethnic diversity in their networks, with
white Americans having the greatest homogeneity.
In the inner-city context, then, those with the least experience
in forging cross-racial relationships have the greatest need
to do so. White entrepreneurs in central cities usually cannot
leverage their personal knowledge of co-ethnic customer tastes
and appeal to bounded solidarity to build protected markets.
While these firm owners may choose to focus on building cross-race,
central city relationships personally, they may also establish
relationships with other institutions or individuals – “social
brokers” – that can provide links to immigrant and
ethnic groups. Government agencies, non-profit and service organizations,
religious institutions, and even current customers or employees
can serve as social brokers, yet not be explicitly dedicated
to this practice. We set out to determine the role and significance
of social brokers in helping white entrepreneurs in central-city
locations forge cross-racial and cross-ethnic links with employees
Then and Now
In his classic 1973 study of discrimination in hiring, sociologist
Howard Aldrich examined patterns of firm ownership in the predominantly
black neighborhoods of Roxbury (Boston), Fillmore (Chicago) and
Northern Washington, DC. The majority of the employers (55 percent)
in these areas were white, and whites were minorities in the
residential population (ranging from 10 percent of the population
in Fillmore to 28 percent in Roxbury). Aldrich also found that
80 percent of the white firm owners were “absentee owners.” White
firm owners were more likely to hire people who lived outside
of the neighborhood and were more likely to hire white employees
than non-white central city firm owners. Other studies at the
time found similar ownership patterns in other cities.
Do these conditions still persist? In 1970, when Aldrich’s
data was collected, each of the neighborhoods studied had only
a decade earlier been predominantly white. Aldrich tied the pattern
of white firm ownership to an inability of white firm owners
to leave as rapidly as white residents.
But the “white flight” context of the early 1970’s
no longer exists in central cities. White residents have long
been gone from these neighborhoods, and the absolute number of
businesses has declined significantly. So today’s central
city firm owners are more likely to be located there by choice.
A second difference is the considerable influx of non-white immigrants
from Asia, Central America and the Caribbean. Previous studies
have shown these groups to have high incidence of entrepreneurship.
To update Aldrich’s study, we analyzed a subsection of
employer respondents from the Multi-City Study of Urban Inequality
(MCSUI). This data was collected by researchers in Atlanta, Boston,
Detroit and Los Angeles between 1992 and 1995 to examine labor
market dynamics, with a particular focus on jobs requiring no
more than a high school education. Table
1 presents the incidence
of white firm ownership by metropolitan area subsection, based
on 510 respondents.
As found in studies from the 1970s, the dominant coalition of
firm owners are white (84.9 percent), and seven of every 10 firm
owners in predominantly non-white central city areas are white.
The percentage of white firm ownership in central city areas
is even greater than in studies from the early 1970’s.
Why? It has long been argued that whites have greater access
to critical capital stocks, making them better able to start
firms and to weather economic hardships than their black and
Hispanic counterparts. Second, black central city neighborhoods
have been especially hard hit by the exit of the middle class,
who had options to move after segregation declined in the 1970’s.
We then analyzed responses of firm owners regarding the incidence
of white customers and employees by city subsection. In central
city areas, where the majority of the residents are non-white,
the white/nonwhite composition of the customer base and employee
base is evenly split (50.1 and 47.5 percent, respectively). However,
there is considerable variation across firms in terms of their
customer and employee demography. The standard deviation was
35.1 percent for white customers, and 40.5 percent for white
Next, we set out to determine the influence of owner race on
racial composition of the employment base. Because Aldrich found
that differences in firm type (e.g., retail, service or manufacturing)
accounted for some of the differences in hiring patterns, we
controlled for sector of employment in our analysis.
In line with the findings of studies from a generation ago, we
found that the race of the firm owner influences hiring patterns,
even when adjusted for firm location and industrial sector. White
firm ownership increased the percentage of white employees by
an average of 40 percent.
Aldrich generated four hypotheses regarding the possible role
of discrimination in hiring patterns. First, white employers
may simply prefer associating with whites over blacks. Second,
white employers might practice statistical discrimination, in
which negative beliefs about the work fitness of blacks cause
employers to prefer not to hire black employees. Third, white
employers might avoid hiring blacks because of negative reactions
of other employees or the firm’s customers. Fourth, white
employees might be over-represented because whites who worked
in the firms prior to the wholesale white exodus from the neighborhood
hung on to their jobs in these neighborhoods. Aldrich was ultimately
unable to determine whether discrimination accounted for the
overrepresentation of white employees in white-owned firms located
in black neighborhoods.
Today, two of these hypotheses are less useful. The customers
of firms in today’s central city areas are as likely to
be white as non-white. And because white flight is no longer
a recent phenomenon – as it was in the 1970s – there
is a low potential that the current set of white employees were
unable to find work elsewhere. The second hypothesis, that white
employers have developed a “distaste” for non-white
labor, has been examined by other researchers. In interviews
with white employers in central city areas, employers expressed
their tendency to practice statistical discrimination with black
applicants because of past experiences with negative workplace
attitudes and behaviors. Sociologist William Julius Wilson in
1996 examined black employers from the same neighborhood, and
found that they expressed similar views of the attitudes and
work ethic of central city black employees.
But employer distaste probably doesn’t explain the differences
in hiring patterns by race of owner observed above. Perhaps white
employers, like other tokens, face barriers in establishing cross-race
relationships that might assist them in locating the most qualified
employees from the local pool of labor. Given the generally low
opinion employers appear to have of central city labor, reference-based
hiring may be one of the prime means of ensuring labor quality.
In his classic 1973 study of personal contacts in job-seeking,
sociologist Mark Granovetter found that the overwhelming majority
(83 percent) of managerial and professional job seekers found
their jobs through acquaintances with whom they spoke occasionally
or rarely. This finding of the “strength of weak ties” is
one of the more influential ideas in the social sciences.
But Granovetter’s reanalysis of Stanley Milgram’s
data on interracial acquaintance chains has been less discussed.
Granovetter reanalyzed the success rate of white senders who
attempted to deliver a booklet to black targets through acquaintance
chains, if the first connection between a white sender and a
black recipient described the black person as a “friend” or
an “acquaintance.” Granovetter found that the weak
tie instances – those where the first black connection
was described as an acquaintance – were twice as likely
to result in a successful completion to the eventual target.
Weak acquaintance ties were more successful than strong friendship
ties in reaching cross-race targets.
Given this, we hypothesize that cross-race weak ties might also
assist in the recruitment of employees. And institutions or individuals
that bridge socially segregated groups are a form of weak tie
relationship that employers can use to mediate their token status.
Connections through community service organizations, religious
institutions, civic leaders, and current employees might assist
employers in locating qualified minority employees and result
in larger numbers of minority employees.
Using Social Brokers
Hiring proper employees is a critically important task for a
firm owner. But when the employer is white and the employees
are generally non-white, the hiring challenge may be especially
difficult. A racial “outsider” may find it tough
to accurately screen an applicant during the hiring process and
reveal potential behavioral or attitudinal mis-hires. Once employees
are hired, white employers may worry that negative on-the-job
feedback will result in accusations of racial prejudice. Given
the distrust, doubt and accusations that can sometimes accompany
cross-race interactions in central cities, some entrepreneurs
may choose to avoid central city locations or minority employees
The MCSUI contained a series of questions regarding the methods
used by employers in hiring for their last employment vacancy.
The positions were those that did not require the applicant to
hold a college degree. We investigated the influence of hiring
methods that involved social brokers on minority hiring rates
in central cities. Table 2 presents the results of three linear
regression analyses using dummy variables to determine the influence
of the race of owner, city subsector, industry sector and hiring
methods on the percentage of non-white employees in the firm.
The analysis of the full set of firms shows that manufacturing
firms are more likely to hire non-white employees. This is likely
due to the greater need for unskilled labor in these firms. The
first evidence of social brokerage is found in the strong influence
of employee recommendations on the percentage of non-white employees.
Both the magnitude of this coefficient and its high level of
significance is persuasive evidence of the use of this practice
among entrepreneurs. The use of help wanted signs was also shown
to increase the percentage of non-white employees. Help wanted
signs are a strategy for employers seeking to attract employees
that happen to pass the firm location, and may be a means to
hire from the local community without aid of brokerage.
Private-service temporary agencies appear to serve as brokers
for firms seeking to hire white employees, while community agencies
serve firms seeking non-white employees. These differences are
likely generated by the divergent customer needs that each agency
Even after controlling for city subsection, industry and hiring
method, the strongest influence on percentage of non-white employees
is still the race of firm owner. This suggests that our analysis
has failed to account for other factors influencing the hiring
choices of white owners, and that these results do not rule out
preferences for homophily.
Splitting the files by city subsection allowed us to compare
the incidence of brokerage strategies by firm location. We found
that outside central city areas, manufacturing firms have a greater
tendency to hire non-white employees, and help wanted signs increase
the percentage of non-white employees. An alternative perspective
is that employers located in suburban areas are familiar with
available local labor (predominantly white), and use help wanted
signs as an “affirmative action” strategy, designed
to attract potential employees that are not in their current
Employers may find that non-white applicants that learn of their
openings by passing their location are more likely to be “acculturated” or
familiar with the workplace behaviors necessary to work in suburban
contexts. The positive finding for all firms appears to be driven
by the use of this brokerage strategy in central cities. Outside
of central cities, employers utilize current employees as brokers
for non-white employees, though to a lesser degree. Private-service
temporary agencies play a strong role in bringing white employees
into firms. Finally, referrals from educational institutions
enhance non-white hiring outside central cities. It appears that
for firm owners in these areas, educational institutions play
a brokerage role in assisting in the hire of non-white employees.
Entrepreneurs must also manage another critical constituent group
on the demand-side of the equation: customers. Customers are
not only a firm’s source of revenue, they are a prime means
of attracting new customers through word-of-mouth. But for white
entrepreneurs operating in central city areas, building relationships
with customers from the local community may present many of the
same challenges found in locating employees. White firm owners
are less likely to be personally familiar with community members
and are less likely to be personally aware of emerging customer
tastes and needs. Non-white customers may resent the presence
of white firm owners, and customer dissatisfactions may take
on an accusatory tone generally not experienced in contexts where
the customers are predominantly white. There is a historical
legacy of mistreatment of minority customers in businesses owned
by white proprietors. White central city entrepreneurs may therefore
attempt to use employees as brokers to manage potentially fractious
relations with a substantial base of non-white customers.
We set out to determine the influence of customer demography
on the makeup of a firm’s labor pool. If increasing percentages
of non-white customers positively influences the percentage of
non-white employees, it would suggest that employers use employees
as social brokers to manage relationships with customers. To
investigate, we ran a linear regression analysis of race of firm
owner, industry sector, firm location, and percentage of non-white
customers on the mean percentage of non-white employees.
The results of this analysis are consistent with the hypothesis
that customer demography explains some of the variance in employee
demography even after controlling for race of firm owner. Subsequent
analyses of these influences by firm location showed the same
pattern of results throughout. However, the magnitude changes
of coefficients provided some interesting findings. First, when
compared with the prior analysis of employer race influence on
employee demography, the coefficient for white firm owners decreased
when the predictor variable for customer demography was entered.
Some of the variance explained by employer race in the earlier
analysis is now shown to result from customer demography. Second,
white customers have a positive influence on the number of white
employees in all locations, although the relationship became
stronger in suburban areas. Third, white firm owners have an
even greater positive influence on the percentage of white employees
in central city areas. This suggests one of two alternative hypotheses:
a) white firm owners in central city locations have an even greater
preference for white employees than in suburban areas; b) white
firm owners face even greater challenges in locating non-white
labor in central city areas. Given our theoretical framing of
white firm owners as tokens we suspect the latter.
Taken together, our findings suggest that relationships play
a critical role in job seeking, especially when operating cross-racially.
And understanding this dynamic is becoming more important. For
over the past several decades, patterns of social and racial
segregation have created structural holes, which in turn have
created economic opportunities in central cities – America’s
emerging domestic markets.
Entrepreneurs of all races and ethnicities are figuring out how
to build wealth while providing jobs and leadership that diminish
many of the social problems we’ve come to associate with
inner city communities. In May 2003, Inc. magazine released its
annual list of the most rapidly growing inner-city firms. The
characteristics of the members of the Inner City 100 may seem
surprising: average sales of over $25 million, and five-year
growth rates over 600 percent.
Social brokers will play an important role in developing these
markets further. America’s inner- city neighborhoods will
increasingly show promise as sites for investment, and many of
the entrepreneurs pursuing these opportunities will not be ethnic
and racial minorities. On Inc.’s list, 62 percent of the
firm owners were white. Locating high quality employees in a
cross race situation requires the recognition that relationships
matter and that relationships tend to stay within the same race.
Without building social brokerage relationships, employers run
the risk of missing the most qualified members of the labor pool.
Gregory B. Fairchild is assistant professor of management at
Darden Graduate School of Business Administration at the University
Jeffrey A. Robinson is assistant professor of management at NYU