Immigrants are 15 percent of the overall United States population, but they become entrepreneurs at a much higher rate than native-born citizens, according to new research by William Kerr and Sari Pekkala Kerr. According to the Kerrs' new National Bureau of Economic Research working paper, “Immigrant Entrepreneurship,” the 15 percent of the population who are immigrants account for as much as 28 percent of the entrepreneurial businesses in the U.S. (VIA | Working Knowledge, Harvard Business School)
One of the persistent points of debate among those who differ on U.S. immigration policy, typically falls along these lines:
Anti-immigration | Immigrants take jobs from native-born Americans
Pro-immigration | Immigrants don't reduce employment opportunities, immigrants actually help create jobs
While there are several high-profile examples of immigrant entrepreneurs like Google cofounder Sergey Brin or Tesla founder Elon Musk, there has been little data to gauge the level at which immigrants create companies and jobs. Harvard Business School William Keer and his wife Sari Pekkala Kerr, a labor economist at Wellesley College have sought to remedy that problem with a database of detailed employer-employee information developed by the US Census Bureau called the Longitudinal Employer Household Database (LEHD), which includes employment data from state-level quarterly payroll filings of 200 million Americans from the years 1992 to 2011.
Pekkala Kerr, who is herself an immigrant from Finland who came to the U.S. as an exchange visitor, worked under the H1-B visa program, and ultimately became a US citizen. Kerr has specialized in research in entrepreneurship and innovation. Together, they were able to investigate how many people born outside the United States were responsible for firm creation and the traits of those firms.
Using their method, Kerr and Pekkala Kerr show that immigrant-owned entrepreneurial businesses are growing over time, from 17 percent in 1995 to 28 percent in 2008.
Percentage of U.S. entrepreneurial businesses owned by immigrants
1995 | 17%
2012 | 28%
(More on the research methods, including the Kerrs' definition of the term “entrepreneurship” can be found here.)
Survival rate vs. employment growth rate
“(Immigrant entrepreneurs) are more likely to fail than those founded by natives, but those that survive experience greater employment growth,” says Kerr. This “up or out” scaling dynamic is frequently connected to how entrepreneurs create jobs, and this finding suggests immigrants may play an accentuate role in that process. “The way entrepreneurs create jobs is not by staying small forever and creating a gazillion firms,” says Kerr. “It's a small firm that grows to a Facebook or a chemical plant with 800 employees.”
Part of the reason why immigrant firms display these properties can be linked to where and what kind of firms they choose to found. “You may find more immigrants in riskier industries and in more volatile business environments like California,” says Kerr.
The authors also note that the job effects are larger in high-wage and high-tech sectors, and they report findings for firms backed by venture capital.
Does the research support H-1B program debate? Not quite.
The Kerrs' findings don't fit perfectly into one side or the other of on going debate surrounding immigration. For example, even though advocates often use examples like Sergey Brin to argue for expanding the H-1B program, which is used for employment-based immigration by adults, the Google founder actually came to the United States as a child.
A preliminary analysis by Kerr and Pekkala Kerr showed that immigrants who come into the country at a young age build better-growing firms than those who come to the United States as adults.
Read more | Working Knowledge, Harvard Business School)
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