Immigrants nearly twice as likely to start businesses

April 29, 2021

Rather than taking jobs, immigrants to the U.S. are creating them. (AP Photo/Elise Amendola)

Immigrants in the United States are more likely to create jobs than to take them, according to a new study examining the role of immigrants in entrepreneurship.

Researchers found that immigrants not only expand labor supply as workers but also expand labor demand as founders of firms, and do so at much higher rates than their native-born counterparts. Existing research has shown that immigrants start businesses at higher rates than native-born individuals do, but this paper expands on that research and finds that immigrants are not simply starting small businesses, but that they are more likely to start more firms of every size.

The study, forthcoming in American Economic Review, used administrative records from the Internal Revenue Service of every firm founded in the U.S. between 2005 and 2010 as well as the U.S. Census Bureau's Survey of Business Owners. Pierre Azoulay, a professor at the Massachusetts Institute of Technology, said he and his co-authors had a "data window into entrepreneurship" that hadn't previously been available to researchers. 

"That gave us a data window into entrepreneurship at scale and over time in a way that simply had not been possible before for any other research team," he said. 

Between 2005 and 2010, 0.83% of immigrants in the workforce started a business, compared to 0.46% of native-born individuals; immigrants exhibit an 80% higher entrance rate into entrepreneurship, according to the research. As business owners, immigrants are also more likely to employ other people, Azoulay said. The total employment assigned to immigrant-founded firms per immigrant in the workforce is 49% larger than the total employment of native-founded firms per native worker in the workforce.

This is true even for Fortune 500 companies. For each firm in the 2017 Fortune 500 ranking, the researchers looked at the founding year, founder names and founders' country of birth. Unlike small and medium-sized businesses with fewer employees, these larger companies are more likely to have multiple founders, so the researchers used multiple definitions of "immigrant firm" to include anyone on the founding team being an immigrant and the highest-paid founder being an immigrant, as well as a more proportional approach where they looked at the fraction of founders who are immigrants versus not in a particular firm size class. No matter the framework they looked at, though, the basic qualitative story stayed the same, Azoulay said. 

"Immigrant entrepreneurs are over-represented among the ranks of high growth entrepreneurs relative to natives," he said. "So it's not just a small-scale phenomenon. It exists at every firm rank, at every size."

Past research with labor supply-oriented analyses often paints immigrants as competing with local workers and depressing wages, while natural experiments often show more positive results of immigrants, according to the research. The findings of this paper may help to resolve the tension between those two viewpoints, according to the researchers. Azoulay said that while his findings show a correlation between immigrants and higher rates of entrepreneurship, he and his colleagues are interested in doing further research into what might be causing these differences.

"What we want to know next is what kind of immigration policies, in particular, have the potential of affecting entry into entrepreneurship by immigrants," he said, noting that entry into high growth companies is of particular interest. "Is it the case that more immigrants actually do cause more high growth companies? Establishing that, I think, would be important."

The study "Immigration and Entrepreneurship in the United States," forthcoming in American Economic Review, was authored by Pierre Azoulay, Massachusetts Institute of Technology and National Bureau of Economic Research; Benjamin F. Jones, Northwestern University and National Bureau of Economic Research; Daniel Kim, University of Pennsylvania; and Javier Miranda, Halle Institute for Economic Research.

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