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November 19, 2018

Immigrant entrepreneurship: The evidence so far

Opinion image

The Brexit referendum in the UK and the 2016 US presidential election brought a significant amount of immigrant resentment to the fore in countries that many deem to be quite immigrant friendly. With these surprising developments, the impacts, contributions, and achievements of immigrants became a matter of fundamental debate. 

At the same time, policymakers in many countries harbor great hopes about attracting immigrants. They are often perceived as being highly entrepreneurial and important for economic growth and innovation. 

That sentiment is reflected in immigration policies. Many developed countries, including Germany, the US, Canada, Australia, and the UK have created special visas and entry requirements in an attempt to attract immigrant entrepreneurs. 

But are the hopes often associated with the arrival of immigrants supported by real-life evidence? In particular, do research findings and data support these notions? 

As measured by business ownership and start-ups, immigrants do indeed have a positive impact in the sense that they are overrepresented in many countries, including the US, the UK, Canada, and Australia. And at least in the US, immigrants’ economic impact using these measures appears to be especially significant since the Great Recession of 2008/9. 

In particular, immigrants’ share of the self-employed has grown from 12.5% of the US labor force in 2000 to 21% in 2014. That is roughly a 75% increase. In other words, roughly one in five self-employed workers in the US is now foreign born.

That immigrants have played an even more important role in self-employment growth since the Great Recession is arguably more striking. Immigrant self-employment between 2007 and 2014 increased by 270,000, while it declined rather steeply among those born in the US, by 1,269,000. 

The data suggest that, while immigrants contribute significantly to entrepreneurship in boom times (as measured by self-employment), they may play an even more important role during recessions. 

This may be a counterintuitive finding, but could be due to stronger so-called push factors. Employment opportunities for immigrants may have been even more restrictive than for natives, prompting relatively greater entry into self-employment. 

The task ahead now lies in tracking the performance of these recession start-ups and analyzing possible differences between native and foreign born business owners. 

There are other important ways to measure immigrants’ economic contributions. For example, in the US case, the increase in the share of the population of immigrants with at least a college degree between 1990 and 2000 raised the patenting rate on a per capita basis in that period by about 21%. The higher rate of US patent applications among college graduate immigrants is explained by the greater share of immigrants with science and engineering education compared to natives, as opposed to immigrants having higher levels of abilities associated with innovation. 

The available US evidence shows that immigrant entrepreneurs can represent a significant positive contribution to host country economies. Immigrants are more likely to own businesses than their native counterparts, and this ownership contributes to their and their families’ deeper economic integration into their new home society. 

However, there is no strong evidence that self-employment is a very effective tool of upward economic mobility among those in greatest need of such assistance—low-skilled immigrants. There is also no reliable evidence of the success of investors’ visa programs. The same is true for the question of what criteria works best for them. 

© Magnus Lofstrom

Read Magnus Lofstrom’s full article, “Immigrants and entrepreneurship.

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We recognize that IZA World of Labor articles may prompt discussion and possibly controversy. Opinion pieces, such as the one above, capture ideas and debates concisely, and anchor them with real-world examples. Opinions stated here do not necessarily reflect those of the IZA.

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