Small Business

Immigrants Are More Likely to Be Entrepreneurs


A new study shows conclusive evidence that immigrants are more likely to start new businesses. And those businesses make significant contributions to U.S. economic activity

I published a research report back in 2006 showing that over 50 percent of Silicon Valley engineering and technology startups were founded by immigrants (as were 25 percent of such startups nationwide), I concluded that immigrants were more likely to be entrepreneurs. Most of the feedback I received was extremely positive. But I also took fire from a few well-known open-immigration policy opponents, including professor Norm Matloff of the University of California at Davis, who said that large existing immigrant populations in tech centers skewed the results of my survey of 2,054 companies.

Matloff has argued, in academic listservs and in a volley of e-mail exchanges with me, that all things being equal, immigrants are no more likely to start businesses than U.S. citizens and permanent residents. He says this is particularly true in Silicon Valley, because immigrants comprise about 50 percent of the population. Therefore, his argument goes, immigrants really only displace entrepreneurs who are U.S. citizens and permanent residents, rather than augment the total number of startups and add real economic value.

But I continued to believe the high immigrant population was reflective of higher-risk appetites required for environments like Silicon Valley, where joining a startup is always a risk. In other words, choosing to start a business is a process of self-selection, not a numbers game that happens because a lot of immigrants happen to live in one area. At a gut level, one would think that immigrating to a new country is risky and therefore new immigrants have a higher risk appetite than U.S.-born folks. Truly conclusive data, however, was difficult to put together due to limitations on sample sizes.

Comprehensive SBA Study

Now, a November 2008 study by Robert W. Fairlie, a professor at the University of California at Santa Cruz, gives the strongest evidence to date that critics of open-immigration policies have misjudged the impact of immigrants on the U.S. economy.

Issued under the auspices of the U.S. Small Business Administration, the peer-reviewed study pulled data from three large, nationally representative government data sets, and found that immigrants are almost 30 percent more likely to launch a business than non-immigrants. According to the study, roughly 16.7 percent of all new business owners in this country are immigrants, yet immigrants make up only 12.2 percent of the workforce in the U.S. It also found that immigrant-owned businesses contributed roughly $67 billion to the country's business income, out of a total of $577 billion in 2000. Although this total is slightly below a one-to-one ratio of immigrant population to immigrant-owned business, it is still a very significant chunk of economic activity. And keep in mind, these economic activity findings were from eight years ago, so the total economic activity contribution has likely increased since then.

The data from the study also disprove the commonly held perception that immigrants are most heavily represented in lower-income tiers. According to Fairlie's research, the average annual net business income of an Indian-owned business is $83,000, the highest average of any immigrant group broken out in the research and higher than the average for U.S.-born entrepreneurs by $33,000. Chinese-owned businesses slightly underperformed those of U.S. born-entrepreneurs by $3,000 per year, but businesses of many other immigrant nationalities, including Taiwanese, Canadian, Filipino, and Greek, strongly outperformed the average for U.S.-born businesses.

The Numbers Don't Lie

It's no surprise that the study showed immigrant business owners comprise an even higher percentage of total business owners in some of the most dynamic business locales in the country. In California, over 30% of all businesses are immigrant-owned. In New York, nearly a quarter of all businesses are immigrant-owned. Nor were the immigrant businesses clustered in areas such as high tech or lawn care. Immigrant founders held disproportional shares of a variety of businesses, including media and transportation.

These obvious discrepancies between my critics' assertions and reality could probably be explained away with some logical gymnastics. But the numbers, in this case, simply don't lie. The three data sets used in Fairlie's study are some of the largest that could be accessed for research like this. This research, once and for all, puts an end to debate about the value immigrant entrepreneurs bring to America's economy. The answer is clear now—a whole lot.

Wadhwa is senior research associate at the Labor Worklife Program at Harvard Law School and executive in residence at Duke University. He is an entrepreneur who founded two technology companies. His research can be found at www.globalizationresearch.com.

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