Entrepreneurship, Immigration Reform and the Economy

By SBE Council at 21 July, 2014, 9:21 am

by Raymond J. Keating-

The debate over immigration reform often strays from sound economics, and gets lost in misguided politics and faulty economic thinking.

Indeed, it’s important to stay focused on the actual economics of immigration, including that immigrants overwhelmingly come to the U.S. seeking greater economic opportunity; they largely complement, rather than replace, native-born workers at all skill levels; and there is a higher proclivity toward entrepreneurship among immigrants compared to the native born.

Immigrants are nearly twice as likely to start businesses and, according to the Small Business Administration, started 28 percent of all new U.S. firms (2011), while accounting for 13 percent of the U.S. population.

Of course, in the current poor economy, far fewer immigrants come to the U.S. for employment given the poor rate of job creation. At the same time, it is important to recognize that our poor rates of economic and employment growth tie back to diminished risk taking, that is, restrained investment and entrepreneurship.

So, it’s particularly important to keep in mind that immigration reform that expands existing avenues and opens new avenues of immigration to those wishing to make positive contributions to our nation, while further securing our borders, will be a significant plus for entrepreneurship.

Consider several points highlighted in a 2012 report from the SBA’s Office of Advocacy (“Immigrant Entrepreneurs and Small Business Owners, and their Access to Financial Capital”):

• “The business ownership rate is higher for immigrants than non-immigrants — 10.5 percent of the immigrant work force owns a business compared with 9.3 percent of the non-immigrant (i.e. U.S.-born) work force.”

• “Business formation rates are even higher among immigrants than the non- immigrant. The business formation rate per month among immigrants is 0.62 percent (or 620 out of 100,000). This monthly rate of business formation is much higher than the non-immigrant rate of 0.28 percent (or 280 of 100,000).”

• “Immigrant owned businesses are more likely to export their goods and services than are non-immigrant owned businesses. Among immigrant firms, 7.1 percent export compared with only 4.4 percent of non-immigrant firms, and immigrant firms are more likely to have high shares of exports.”

The higher rate of entrepreneurship among immigrants also was noted in the Kauffman Foundation’s “Index of Entrepreneurial Activity 1996-2013” report, where it was highlighted: “Immigrants were nearly twice as likely to start businesses each month as were the native-born in 2013.” However, the rate of entrepreneurial activity declined for both the native born and immigrants in recent years, that is, falling for the past four years for the native born and for the last three years for immigrants. Over the longer-term term, though, the trend is clear: the rate of entrepreneurship among immigrant rose markedly from 2001 to 2010 – an increase of more than 100 percent, while the “native-born rate has remained relatively flat over the last eighteen years.”

Also, in an article in August of last year, Karen Gordon Mills, the former Administrator of the U.S. Small Business Administration, pointed out: “In 2011 alone, immigrants started 28 percent of all new U.S. businesses, despite accounting for only 13 percent of the U.S. population. And between 2006 and 2012, 44 percent of new tech startups in Silicon Valley had at least one immigrant founder… Immigrants or their children also founded more than 40 percent of Fortune 500 companies, which collectively employ over 10 million people and generate annual revenue of $4.2 trillion.”

The fact that it’s not just immigrant entrepreneurs, but their entrepreneurial children as well that contribute to our economy is a critical point to keep in mind when considering the full economic impact of immigration.

Finally, in a recent piece, economist Larry Kudlow nicely summed up the issue this way: “Another study, from the Financial Services Forum and Standard & Poor’s, shows that immigrants represent 13 percent of the U.S. population, but account for nearly 20 percent of small-business owners; immigrant-owned small businesses employed nearly 5 million Americans in 2010… We live in an era of labor and capital globalization. That is why we need these immigrant entrepreneurs, both skilled and unskilled. Millions of immigrants came to America in the past and helped grow our economy at rapid rates. It is no different today.”

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Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.

Keating’s new book published by SBE Council is titled Unleashing Small Business Through IP: Protecting Intellectual Property, Driving Entrepreneurship and available from Amazon.com here.