The Impact of Immigrant Entrepreneurs

While largely disconnected from formal business services, immigrant small-biz owners have been a big driver of economic growth in U.S. cities, a new study finds

by Kerry Miller

Alfredo Melendez came to the U.S. from El Salvador at age 15, spoke no English, and had no money and no papers. Although he wanted to go to school, his uncle told him that wasn't an option. His uncle's advice: "Work hard, save your money, and do something with your life." Melendez found a job as a dishwasher at a restaurant outside Washington, D.C., and put in a year of 15-hour days before moving up to a higher-paying job at Dulles Airport. But when his younger brother, a restaurant cook, heard that the aging proprietor of a local takeout joint wanted out, Melendez sensed an opportunity.

He and his brother put together the $25,000 they needed to buy the restaurant by cobbling together their savings and small personal loans from family and friends. Soon, they were in business. They renovated the space, updated the menu, and within the first week they saw sales double, then double again. With the earnings from the restaurant, Melendez started investing in more properties, including an ethnic grocery store that he sold five years later for a profit of $205,000. His story is typical of how many foreign-born entrepreneurs achieve success on their own, without the help of formal business services.

Economic Impact Overlooked

At the national level, the immigration debate hinges on the impact of foreign workers on the labor market. Amid concerns about low-wage workers taking American jobs, some have cited recent studies showing the critical role that skilled immigrants play in the economy, including immigrant-founded companies like Google (GOOG), Yahoo! (YHOO), and eBay (EBAY) (see BusinessWeek.com, 1/3/07, "Open Doors Wider for Skilled Immigrants").

Yet back on Main Street, the role of immigrant entrepreneurs like Melendez remains largely taken for granted, a new study finds.

Local officials certainly haven't been blind to the country's record-level influx of new immigrants: Between 1980 and 2000, the immigrant population in Boston grew at a rate 3.57 times that of the nonimmigrant population in that city; in New York, the immigrant population grew at a rate 1.28 times that of the nonimmigrant population; and in Houston it grew at about the same rate as the nonimmigrant population. And while the entrepreneurial spirit of immigrants is a well-documented phenomenon—immigrants have been more likely to be self-employed than native-born residents in every U.S. census since 1880—the study released on Feb. 6 by the Center for an Urban Future, a New York City think tank, says immigrant entrepreneurs have been an overlooked and little-understood piece of cities' economies. The research shows that more businesses are being started by foreign-born vs. native-born entrepreneurs in major cities, driving growth in sectors from food manufacturing to health care.

Generating Jobs and Tax Revenues

Cities such as New York and Los Angeles have no shortage of economic development programs to help small businesses get off the ground, but Jonathan Bowles, the study's lead author, says too many of them haven't connected effectively with immigrant populations. He says partnering with community-level immigrant organizations for outreach campaigns and hiring more multilingual advisers could go a long way toward opening up these resources.

While largely disconnected from local economic development planning, immigrant entrepreneurs have already been a robust engine for economic growth in U.S. cities, the study shows. In Los Angeles, first-generation immigrants founded 22 of the city's 100 fastest-growing companies in 2005. In Houston, a telecommunications firm started by a Pakistani immigrant topped last year's Houston Small Business 100 list.