Entrepreneurial Immigrants

An October article in Harvard Business Review asks, “Do immigrants take American jobs, or help our economy grow? Do immigrants drain our welfare funds, or can they help refill public coffers as our baby boomers retire?” Furthermore, “state and local governments have clamored to launch initiatives to attract more immigrant entrepreneurs, hoping they will found businesses and create more jobs. Globally, many countries are doing the same — for example, Chile pays overseas entrepreneurs to come visit for six months through its Start-Up Chile program, as a way to build global bridges and foster an entrepreneurial culture at home…Good statistics on immigrant entrepreneurship are exceptionally difficult to assemble, and therefore it’s challenging to create productive policies. Likewise, most standard government sources that are publicly accessible can only tell us about immigrant self-employment, which leaves a big question mark around job creation and economic growth.” The authors–one from Harvard Business School and the other a Senior Research Scientist at Wellesley Centers for Women–explain,

Our recent research aims to address this. We have built a platform that uses restricted-access Census Bureau datasets to explore differences in the types of businesses formed by immigrants and their medium-term survival and growth patterns. The core building block is the Longitudinal Employer-Household Dynamics (LEHD) database, but it incorporates other sources like the Longitudinal Business Database.

This platform gives us a comprehensive view of immigrant entrepreneurship over a long duration (1995 – 2008). The database currently covers 31 U.S. states, with more being added as their unemployment insurance (UI) filings data become available. It spans firms of all shapes and sizes, so long as they have one paid employee or more. For the first time, we can analyze a spectrum of companies — from “Main Street” businesses to VC-backed Silicon Valley firms. We can see what happens to these firms after they have been founded, and whether, for example, immigrant-founded firms perform differently from the start-ups of natives.

And what did they find?:

• Immigrants constitute 15% of the general U.S. workforce, but they account for around a quarter of U.S. entrepreneurs (which we define as the top three initial earners in a new business). This is comparable to what we see in innovation and patent filings, where immigrants also account for about a quarter of U.S. inventors.

• On the whole, immigrant entrepreneurship is somewhat stronger for VC-backed firms, with 31% of VC-backed founders being immigrants, compared to 25% of all entrepreneurs in 2005.
• Immigrant founders launch firms that are smaller than native-founded firms. The average initial employment for firms founded by immigrants exclusively is 4.4 workers, compared to 7.0 workers for firms launched exclusively by natives. When both types of founders are present (i.e., “mixed founder team”), the average is 16.9 workers.
• We quantify subsequent firm performance by analyzing employment growth and closure rates. The firms founded by immigrants close at a faster rate than firms founded by natives, but those that survive do grow at a faster rate in terms of employment, payroll, and establishments for the next six years. Previous research has found that this phenomenon — called “up or out” — is how young firms create more jobs. Compared to older firms, which show modest growth regardless of their size, young firms and new entrants have more dynamic patterns that foster greater job creation. Immigrant-founded firms display more of this behavior.
• Now that we can study the age of arrival, we found that immigrants coming to the U.S. as children are more likely to start larger firms than immigrants arriving as adults. Moreover, firms created by immigrants who have grown up in the U.S. are generally associated with better outcomes, in terms of lower closure rates and higher representation among larger firms. Much remains to be done here, but we hope this serves a spring board to the study of other migrant traits.

The authors conclude, “Global talent flows will continue to be a fundamental force shaping the U.S. economic and business landscape. This is especially true for entrepreneurship given the economic dynamism that startups unleash and the disproportionate role of immigrants in this process.”