Immigrants Remain Critical to U.S. Recovery and Growth

By SBE Council at 21 May, 2022, 9:04 am

by Raymond J. Keating –  

The U.S. economy continues to get battered. A pandemic struck in March and April 2020, with its effects lingering to this day. The economy took a nosedive, and has struggled to recover. And amidst this struggle, entrepreneurs, businesses, investors and workers have been thrashed by raging inflation, a decline in real GDP in the first quarter of 2022, and policies emanating from Washington, D.C., that are dangerously out of touch with economic reality.

At the same time, though, businesses of all types and sizes struggle to fill employment needs due to a tight labor market. Even if the U.S. economy sinks back into a recession, the need to expand the labor force will remain, and that promises to become even clearer when we eventually get back on a track of solid economic growth.

The Critical Role of Foreign-Born Workers

As this scenario continues to play out, it is worth looking at the data from the just-released U.S. Bureau of Labor Statistics “Foreign-Born Workers: Labor Characteristics – 2021” report. The latest edition of this report shows what previous editions have been illustrating for years, that is, foreign-born workers, or immigrants, have been the critical source of increases in the labor force and in employment.

Consider the following key points from this look at 2021, again, as entrepreneurs, businesses, investors and workers tried to lead the U.S. back to economic growth.

● “From 2020 to 2021, the foreign-born labor force increased by 671,000 while that of the native-born labor force was essentially unchanged.”

● “From 2020 to 2021, overall employment increased by 4.8 million. Among the foreign born, employment increased by 1.6 million, an increase of 6.5 percent. Employment also increased among the native born (+3.2 million); however, in relative terms, the increase was about less than half as large, at 2.6 percent.”

● “Foreign-born men continued to participate in the labor force at a considerably higher rate in 2021 (76.8 percent) than their native-born counterparts (65.8 percent). By contrast, 53.4 percent of foreign-born women were labor force participants, lower than the participation rate of 56.6 percent for native-born women.”

Regarding labor force participation, it is important to look at the key working age bracket of 25-54 years old. As reported by the BLS, the difference between foreign-born and native-born is striking: “By age, the proportion of the foreign-born labor force made up of 25- to 54-year-olds (71.4 percent) was higher than for the native-born labor force (62.2 percent).”

It’s also critical to keep in mind that the economy is not a zero-sum game with only so many jobs to go around. Rather the economy grows and jobs are created, and that process is aided by immigrants who do complementary work to native-born workers, thereby increasing productivity for all.

Immigrant Entrepreneurs Drive Job Growth, Competitiveness and Innovation

Finally, key economic challenges for the U.S. for the past decade-and-a-half have been reduced levels and rates of entrepreneurship. And while this BLS report does not address entrepreneurship, studies consistently show that the rate of entrepreneurship among immigrants is notably higher than among the native born – about twice the rate.

In fact, a recent NBER study (“Immigration and Entrepreneurship in the United States”) showed that given the higher levels of entrepreneurship among immigrants, these foreign-born business owners play a significant role in creating employment, as opposed to the mistaken assumption that immigrants take jobs from the native born.

The authors found, “The findings suggest that immigrants act more as ‘job creators’ than ‘job takers’ and that non-U.S. born founders play outsized roles in U.S. high-growth entrepreneurship.” They concluded:

“Using administrative data, a representative sample, and Fortune 500 data, we present new findings on the size of firms these different founder populations create. Across all three data sets, we find that immigrants present a ‘right shift’ in new venture formation, where immigrants start more firms of each size per member of their population… Overall, the entrepreneurial lens suggests that immigrants appear to play a relatively strong role in expanding labor demand relative to labor supply, compared to the native-born population.”

A Bigger Welcome Mat for Immigrants

None of this is surprising when the often-ugly politics of immigration are set aside in favor of the actual data, trends and economics. Clearly, the U.S. economy would benefit from fixing our immigration system so that immigrants who wish to work, start businesses, and generally contribute to the nation are welcomed.

Indeed, throughout this nation’s history, among the competitive advantages possessed by the U.S. in the global economy have been our entrepreneurial drive and a willingness to welcome immigrants, and those two strengths very much are interrelated.

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. His latest nonfiction book is The Weekly Economist: 52 Quick Reads to Help You Think Like an Economist.