President Donald Trump made headlines early in his second term when he ordered that affirmative action programs be dismantled. Less noticed was the fact that quite a few states had already eliminated such preferences for contractors, in some cases years ago.
This record can now provide some answers as to how businesses owned and operated by underrepresented groups actually fare after these measures take effect.
I’m an economist who has researched the consequences of state bans on affirmative action, and I found a mixed picture with some surprising conclusions. Notably, these measures did reduce the average head count among minority- and women-owned contractors. But in general, they didn’t push these companies to close shop.
This research is important not just because affirmative action is so politically sensitive. It matters because of the vast amount of money at stake: The U.S. spends about 10% of its gross domestic product on federal and state contractors, buying everything from pencils to new missile systems.
Action at the state level
For decades, the government often sought to support businesses owned and operated by minorities and women through affirmative action at the federal and state levels.
But in more recent years, pushback against affirmative action and closely related diversity, equity and inclusion initiatives has prompted some states to eliminate such practices, including in contracting. Among the most recent cases was Indiana, whose attorney general pronounced in July 2026 those preferences were unconstitutional.
I looked at the nine states that had banned affirmative action in contracting as of 2020 – covering 114,000 employers – and measured how affected companies adjusted their operations. One key finding is that they sharply reduced their workforce. Five years after a ban, these businesses had about 11% fewer workers than their counterparts who were not minority- or women-owned.
Black-owned businesses were the most affected, cutting their workforce by about 19%. For context, that number exceeds even the early COVID-19 layoffs. The largest minority- and women-owned businesses also had significant reductions, by roughly 13%.
These bans also dampened the formation of new businesses, reducing the annual average number of startups by 35 in states with bans. But there’s no evidence they put minority- and women-owned contractors out of business.
A regional breakdown shows that metropolitan counties saw the largest relative decrease in the size of affected businesses. And states with smaller minority populations saw less of an effect on company size. Altogether, these results suggest that these bans didn’t have uniform effects, even within states.
One conclusion may be less intuitive: These bans didn’t play a role in whether affected contractors went out of business. In fact, companies owned by minorities and women were less likely to go under after a ban than other companies.
This result may seem puzzling at first. One would expect higher rates of exiting from the contracting business than before, especially since affected businesses also became smaller.
But I found statewide bans did lead to the equivalent of a roughly 9% drop in long-run productivity. Bans also equated to a 10% decline in the value of companies, regardless of whether they were sold off.
In short, although affected contractors were no more likely to close shop, banning affirmative action led them to downsize relative to companies that were not owned by minorities and women. And the drop in their employee head count corresponded to a decline in productivity, likely driven by reduced contracting opportunities.
These changes in states, and now at the federal level, make it all the more important to understand how banning affirmative action has impacted underrepresented businesses so policymakers know what to expect going forward.
Questions to be addressed
Many questions still need to be answered. Although my study looked at how underrepresented contractors respond after these bans, researchers still don’t have good estimates of how many contract dollars these businesses lost, except in more isolated cases.
Furthermore, the changes at the federal level still need to be researched. While past legal cases have limited how practitioners have applied affirmative action, attempts to eliminate it at the federal level are very recent. Further research is needed to fully understand the scope of these changes.
Any views expressed are those of the author and not those of the U.S. Census Bureau. The Census Bureau has reviewed this data product to ensure appropriate access, use, and disclosure avoidance protection of the confidential source data used to produce this product. This research was performed at a Federal Statistical Research Data Center under FSRDC Project Number 2075. (CBDRB-FY26-P2075-R12853 and CBDRB-FY26-P2075-R12995)
