Immigrant entrepreneurship: trends and contributions.

• Author: Lofstrom, Magnus
• Position: Essay

Edward Lazear, Stanford economics professor and former chairman of the President's Council of Economic Advisers, has said, "The entrepreneur is the single most important player in a modern economy" (Lazear 2002: 1; see also Holcombe 1998). The emphasis on entrepreneurship and small and startup businesses as key engines in job creation, innovation, and economic growth has a long history, going back to Adam Smith. Not surprisingly, governments around the world view promoting entrepreneurship as a national and local priority. The interest is driven primarily by evidence that small and young businesses create a disproportionate share of new jobs in the economy, represent an important source of innovation, increase national productivity, and alleviate poverty (Reynolds 2005, OECD 2005, U.S. Small Business Administration 2011, Decker et al. 2014).

A frequently held view, often supported by research, is that immigrants are especially entrepreneurial, a sentiment commonly shared by policymakers and reflected in immigration policies. Many developed countries, including the United States, have created special visas and entry requirements in an attempt to attract immigrant entrepreneurs (Fairlie and Lofstrom 2015). In addition to possible contributions to economic growth, employment, and innovation, immigrant business ownership may also act as a tool to enhance immigrant labor market integration and success (Cummings 1980). For example, self-employment may alleviate informational gaps regarding education, skills, and experience gained by immigrants in their home countries, where U.S. employers are uncertain about how foreign-obtained human capital relates to productivity in the United States. Labor market discrimination and limited English proficiency are other possibly relevant hurdles faced more by immigrants than by U.S.-born workers. Although relevant across all levels of skills, this arguably may be most relevant to low-skilled immigrants, who face the highest hurdles to hiring in an increasingly skill-intensive economy.

This article analyzes recent U.S. data to examine how immigrants during the last 15 years have contributed to entrepreneurship through self-employment and earnings. It aims to address the questions of how do immigrants contribute to recent U.S. selfemployment trends, in what industries are immigrant entrepreneurs concentrated, and how do their earnings compare to those of U.S.-born entrepreneurs? Before turning to the analysis, aimed to provide a broader understanding of contributions of immigrants to entrepreneurship, I begin with a brief overview of the relevant literature. (1)

Literature Review of Immigrant Entrepreneurship

There are a number of relevant ways to measure entrepreneurship and immigrant contributions to it. One is by measuring business ownership and startups. A body of research has consistently found that business ownership is higher among the foreign-born than the native-born in many developed countries such as the United States, United Kingdom, Canada, and Australia (Borjas 1986; Lofstrom 2002; Clark and Drinkwater 2000, 2010; Schuetze and Antecol 2007; Fairlie et al. 2010). Immigrants in the United States are also found to be more likely to start businesses than the native born (Fairlie 2008).

Other measures of entrepreneurship also point toward significant immigrant contributions. For example, as a recent review of the relevant literature shows, immigrants are greatly over-represented among U.S.-based Nobel Prize winners, high-impact companies, patent applications, and members of the National Academy of Sciences and the National Academy of Engineering (Fairlie and Lofstrom 2015). They are also over-represented among founders of high-tech companies, biotech firms, biotech companies undergoing initial public offerings, and public venture-backed U.S. companies. Nonetheless, some researchers urge caution about interpreting immigrant contributions to the high-tech sector of the economy. Hart and Acs (2011: 116) conclude that "most previous studies have overstated the role of immigrants in high-tech entrepreneurship."

There is evidence of broader contributions by skilled immigrants to innovation. For example, Hunt and Gauthier-Loiselle (2010) find that the increase in the share of the U.S. immigrant population with at least a college degree increased the country's patents per capita by about 21 percent. Importantly, they point out that their analysis does not suggest that immigrants are innately more able than the native-born but that the higher rate of patenting among college graduate immigrants is entirely explained by the greater share of immigrants with science and engineering education compared to the native-born. Another influential study, by Kerr and Lincoln (2010), assesses the impact of high-skilled immigration on technology formation as measured by science and engineering employment and patenting. They find that high-skilled temporary workers from India and China on H-1B visas in the United States account for a significant share of the growth in U.S. immigrant science and engineering employment. A key takeaway is that the growth is accomplished without crowding out native-born scientists and engineers.

However, not all evidence points toward such positive and beneficial effects of immigrant entrepreneurship. Specifically, there is some evidence that immigrant entrepreneurs may crowd out native-born entrepreneurs (Fairlie and Meyer 2003). This limited evidence is mixed, and even within the same study, the findings also indicate that immigration increases earnings among the native-born self-employed. In light of the less than clear picture of the role of immigration on native business owners, Fairlie and Meyer (2003: 647) suggest that the results "may be due to immigrants primarily displacing marginal or low-income self-employed natives, but our analyses do not provide clear evidence supporting this hypothesis."

The notion and relevance of self-employment as an economic stepping stone, as well as a tool in immigrants' economic assimilation process in the host country, has been explored by a number of researchers. Most researchers have focused on examining whether business ownership tends to rise with time in the new country, and generally find a positive relationship (Borjas 1986, Clark and Drinkwater 2010, Lofstrom 2002, Schuetze 2009, and Andersson and Wadensjo 2005). Fewer studies have analyzed assimilation earnings patterns among immigrant self-employed business owners.

Lofstrom (2002) analyzes both self-employment probabilities and earnings and finds that both increase along with time spent in the United States. Specifically, he finds that self-employed immigrants are relatively successful and may even reach earnings parity with observationally similar U.S.-born entrepreneurs after about 25 years in the country. For wage-earning immigrants, however, he does not find evidence of earnings convergence relative to their native-born wage-earning counterparts. In an analysis that also includes immigrants in Canada and Australia, Antecol and Schuetze (2007) find that in all three countries self-employment increases with the time in the country but that in terms of earnings outcomes relative to natives, self-employed immigrants in...