EFFECTS OF IMMIGRATION ON ENTREPRENEURSHIP AND INNOVATION.

• Author: Krol, Robert

Economic growth in advanced economies is driven primarily by innovations that improve productivity. Entrepreneurs and researchers, who are motivated by economic incentives, generate new ideas that result in either new or expanded businesses. The resulting expansion of businesses generates new and better products and services. Entrepreneurs also change the way production is organized because they improve efficiency that lowers prices for consumers. Such actions produce economic growth, which manifests itself by increasing product variety, jobs, and wages. As a result, economic well-being increases (Alcigit and Kerr 2018; Jones 1995, 2016; McCloskey 2016; Romer 1990).

Immigrant entrepreneurs play a role in the economic growth process. Higher levels of immigration increase economic growth through an immigrant's productive skills and innovation-related activities (Ortega and Peri 2014). Immigrants also account for a large share of patents in the United States. In addition, immigrants contribute to new businesses and tend to be more entrepreneurial than the average U.S. citizen (Kerr 2019).

Immigration is controversial because people have differing Hews about the effects that immigrants have on the economy and culture.

This article focuses on the economic rather than cultural effects of immigration. Although it is unlikely that culture and the economy are unrelated, there is evidence that cultural diversity, when measured by the diversity of a country's immigrants, raises native wages and the rental value of homes (Ottaviano and Peri 2006; and Nowrasteh and Powell 2021).

Some U.S. citizens are concerned that the increase in immigration may change the country's national identity. Others view immigrants as being similar to themselves: immigrants are people trying to improve their life and economic circumstances. Political rhetoric intensifies such differences, thereby making immigration reform less likely. A look at polling data provides a sense of the divergent views that individuals have on immigration. Polling data in the United States suggest that people are generally divided over the effects of immigrants on die country.

A 2020 CBS News poll asked, "Generally, do you think immigrants coming to the United States make American society better in the long run, make American society worse in the long run, or you don't think immigrants coming to the U.S. have much of an effect on American society one way or the other?" Among respondents, 55 percent said better, 16 percent said worse, and 20 percent said it did not have much effect (CBS News 2020).

A 2020 Gallup poll tisked the question, "In your view, should immigration be kept at its present level, increased, or decreased?" Among respondents, 36 percent wanted to keep it at the present level, 34 percent thought it should increase, and 28 percent wanted it decreased. Whereas responses have fluctuated over time, the percentage of people who think the level of immigration should be increased equaled only 7 percent in the earliest poll taken in 1965. Respondents who thought it should be kept at the same level or decreased declined over the same period suggesting, at least until recently, that immigration appeared to be viewed more favorably (Gallup 2020).

Those polls suggest that people in the United States are divided about the costs and benefits of immigration. U.S. citizens should keep in mind that immigrants, especially high-skilled ones, start new businesses and play an important role in technological innovation--both of which help create jobs and raise wages for everyone. Immigrants help provide important services such as in health care (Lincicome 2020). The net benefits of immigration promote economic growth and well-being, thus expanding opportunities for both immigrants and native-born populations in the United States.

To better understand the effects of immigration on the economy, this article will provide basic data about immigration trends in the United States. The main body of the article will review die evidence from studies that examine the effects of immigration on entrepreneurship and innovation.

Immigrants in the United States

Immigrants are people living in the United States who were not U.S. citizens at birth. Immigrants include naturalized U.S. citizens, green-card holders, refugees, asylees, temporary visa holders, and unauthorized persons. Table 1 provides data about die total number of immigrants (measured in thousands). It also expresses the number as a percentage of the U.S. population between 1960 and 2019. Both measures have increased significantly over the period.

Table 2 provides a breakdown of immigration data by country of origin. For each country, if it was in the top 10 (by amount) for the years between 1960 and 2019, the table lists the percentage of total immigrants from that country in that year. For die years in which the country was not in the top 10, no data are reported. More than 10 countries are listed because, over time, countries in the top 10 in early years drop out and new countries enter the top 10. Two trends are apparent. First, European countries make up a larger portion of source countries in the earlier years but not in later years. Second, the share of total immigrants from Asia, Central America, and South America has increased over time. Unsurprisingly, Mexico captures the largest share by far in 1980 and beyond.

Table 3 provides the educational attainment level for immigrants from 10 countries with the largest share of immigration in 2019. Panel A looks at all immigrants, while Panel B looks at the same group of countries but for all the immigrants who came to die United States after 2013. The skill distribution of immigrants tends to have a U-shape. Skill levels concentrate at the high and low ends of the distribution. We can see this concentration in Table 3. I calculate that, for all immigrants between 1960 and 2019, 26.3 percent had fewer dian 12 years of education, whereas 32.7 percent had a bachelor's degree or more (Panel A). For comparison, in 2019, 36.3 percent of native-born U.S. citizens had a bachelor's degree or more, and 6.7 percent had not graduated from high school. Those percentages change for the more recent immigrants: 18.6 percent have fewer than 12 years of education whereas 47.9 percent have a bachelor's degree or more (Panel B). The skill mix of immigrants as measured by education level has changed, with fewer unskilled workers and more skilled workers.

More than 85 percent of recent immigrants from India have a bachelor's degree or more. Other countries that provide a large percentage of skilled labor include China and the Philippines. Moreover, Guatemala, Mexico, Vietnam, and the Dominican Republic provide the largest shares of unskilled labor.

The number of immigrants has increased both in absolute numbers and as a share of the U.S. population. Moreover, the countries of origin have shifted from Europe to Latin America and Asia. The share of higher-skilled immigrants has risen, while the share of lower-skilled immigrants has declined.

Immigration and Entrepreneurship

Data indicate the growth in entrepreneurship in the United States is slowing (Congressional Budget Office 2020). Decker et al. (2014) report that in recent decades the trend has been downward in the growth of business startups. The decline has accelerated since 2000. One way to offset this trend is to expand immigration, especially among higher-skilled entrepreneurial immigrants.

Fairlie et al. (2018, 2019) found that the average number of startups between 1995 and 2010 was 5.4 million per year, which represents about 25 percent of the total businesses in the United States. Such startups create about 3 million jobs in their startup year and employ 2.9 million workers five years later. These figures are comparable with those reported in Decker et al. (2014). The employment growth of the surviving firms more than offsets the job losses of firms that exit. In fact, without the...