Who Creates Jobs? Immigrants as Entrepreneurs

As millions of Americans prepare to vote on Tuesday, it is clear that support for the political consensus on free trade, deregulation and high immigration is no more. Whatever the outcome, it seems certain that immigration in particular will strengthen as a political issue, given the traction that the Republican presidential candidate has found with it this election season. 

 

This is concerning for any number of reasons, but one so far has received little attention in both policy debate and academic research: many immigrants are natural entrepreneurs. They make an outsize contribution to the economic landscape, and generate new products and lower prices that improve all our lives. For instance, we know that immigrants start businesses at a much higher rate than natives. We also know that they are overrepresented in the high tech industry, with one study finding that immigrants founded more than half of U.S. startups valued at over $1 billion. Lastly, while the data has only recently become available, there is some evidence that immigrant businesses grow faster on average than those started by natives. 

 

The precise reason for this is not yet well understood, and a focus of my ongoing research. However, it clearly has macroeconomic implications. My research shows that cities which attracted higher numbers of immigrants in the past decade saw significant upsurges in business creation. Moreover, this creation was associated with higher levels of economic growth, growing wages and jobs at the same time. 

 

Everyone can name a famous immigrant entrepreneur. For tech enthusiasts today, it’s Sergey Brin or Elon Musk. For students of economic history, it’s Alexander Bell, James Kraft and William Colgate. While our lives would be much poorer without these transplants, the aggregate data show that perhaps even more important are the multitude of small businesses started in different cities across the U.S. by immigrants every year. They are a key part of the changing U.S. economic geography, and a source of dynamism where such bright spots can be hard to find. 

 

To date, most economic research has focused on whether or not immigrants drive down wages and take job opportunities from native residents. While there is ongoing debate, the effects appear muted, especially in the long-run as the economy is able to adjust to an increased supply of labor. However, abstracting from the role of immigrants as job creators and innovators misses much of the story, and a complete understanding of the role of immigration in shaping the U.S. economy is impossible without further research. 

 

In particular, we need to understand how to harness the talents of immigrant entrepreneurs through targeted policy proposals. One idea is to increase the supply of high-skilled H1B working visas, and to relax their employment restrictions. Another is to create a “startup visa” which would allow foreigners to raise funds from American investors for a business venture¹, and obtain an extended stay or permanent residence whilst the venture gets off the ground. In order to examine these policies, further study on where and what type of businesses immigrants create is critically important. 

 

The U.S. has had a long road back from the brink of financial ruin. While the labor market has largely recovered, areas of significant concern remain. Nationally, new business creation is at an all-time low, and productivity growth has been abysmal, leading to rising panic over stagnant wages and living standards. An infusion of dynamism from a new wave of immigration is just what the republic needs in these fractured days.