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Estimates from the Panel Study of Income Dynamics indicate that African‐American men are one‐third as likely to be self‐employed as white men. The large discrepancy is due to a black transition rate into self‐employment that is approximately one‐half the white rate and a black transition rate out of self‐employment that is twice the white rate. Using a new variation of the Blinder‐Oaxaca decomposition technique, I find that racial differences in asset levels and probabilities of having self‐employed fathers explain a large part of the gap in the entry rate, but almost none of the gap in the exit rate.