State bans on contractor affirmative action cut minority firms' workforces but not closures

A recent analysis of nine states that eliminated affirmative-action rules for public contracts—affecting roughly 114,000 employers—reveals mixed outcomes for underrepresented contractors. Within five years, these firms shrank their workforces by about 11% on average, with Black-owned businesses experiencing the steepest decline at 19%, a reduction exceeding early COVID-19 layoffs. Large minority- and women-owned firms also trimmed staff by roughly 13%, and the rate of new firm creation dropped by 35 annually.

Despite the downsizing, the bans did not spur higher closure rates; affected companies were actually marginally less likely to cease operations. Nonetheless, the restrictions corresponded to a near-9% long-run productivity loss and a 10% dip in firm valuation, suggesting fewer contracting opportunities. The findings underscore the need for policymakers to anticipate similar effects as federal affirmative-action measures are reconsidered.