Immigrant entrepreneurship 

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How immigrants impact the American economy is a question open to, often fierce, debate. Do immigrants take American jobs or complement American workers? Do they contribute to our fiscal coffers or drain them by over-consuming benefits?

Although these important questions are unlikely to be answered definitively any time in the near future, there is one topic – immigrant entrepreneurship – where most everyone seems excited. Why not? If immigrants can come here and create a business that makes more jobs, then perhaps this is the ultimate free lunch. The Obama administration (White House Startup America), many states, and lots of cities are thus pursuing initiatives to attract immigrant entrepreneurs.

How does immigrant entrepreneurship work? Given its importance, it may be shocking to some readers how little we know about it. We usually don’t get much further than noting that Sergey Brin, a founder of Google, was an immigrant, but that fact is not terribly helpful for making real economic projections or crafting better policies.

The good news is that we are learning a lot fast. In work with Sari Kerr at the Census Bureau, we developed one of first platforms to consider whether immigrants  start more companies than natives and what companies started by immigrants are like.

Several baseline points emerge:

— Immigrants are more likely to be entrepreneurs than natives. In the sample of states that we can follow the longest (shown below), 24 percent of entrepreneurs are immigrants, whereas immigrants account for 19 percent of workforce.

— This immigrant entrepreneurship share rises from 17 percent in 1995 to 27 percent in 2008, when the data run out.

— Immigrants account for about a third of entrepreneurs receiving venture capital financing.

Graph provided to NewBostonPost

Graph provided to NewBostonPost

These trends are important to observe, but do these companies generate jobs?

Yes, they do. On the whole, the businesses started by immigrant entrepreneurs perform better than native businesses in terms of employment growth over three- and six-year horizons. The pattern is very persistent, although the jobs show no advantages in terms of wages and may even be lower-paying than those developed by native firms.

Much of this growth is linked to choices about where and how immigrants found companies. Immigrants appear to choose sectors and locations that have an up-or-out dynamic to them that aids job creation. Businesses founded by immigrants who came the United States by age 18 have stronger growth patterns than those founded by immigrants migrating as adults.

In parallel work with Martin Mandorff, we measure a particular pattern about these entrepreneurs. Keen observers may have noted an awful lot of dry cleaners owned by Koreans, nail care salons by Vietnamese, and convenience stores by Punjabi Indians. If you travel around a lot, you might also have observed that the taxi industry in many cities is dominated by immigrant groups (e.g., Dominicans) and that this group may vary across cities.

Is this pattern real or imagined based on stereotype?  It is quite real and, indeed, pervasive. On average, immigrant groups are 8 times more concentrated than Americans in terms of entrepreneurial sectors. And some extremely so, as shown below (group titles are those given by the Census questionnaire and frequently are country-of-birth). Yemeni immigrants, for example, who specialize in grocery stores, are as a population almost 50 times more concentrated than Americans.

Graph provided to NewBostonPost

Graph provided to NewBostonPost

What explains this? We identify two factors that promote specialization – smaller group sizes in the United States and greater social isolation. The clustering and networking among Yemeni immigrants can be useful for business reasons, like discussing customer trends, providing mentoring, and so on. It is particularly valuable for getting started within a country. The book Blue Dreams: Korean Americans and the Los Angeles Riots relates a common saying among the early Korean community about occupational choice: “What you do [for your work] depends on who picks you up at the airport.”

This pattern is also observed outside of the United States and with deep historical precedent: for example, the Jews in Medieval Europe and the Japanese in South America. The implications are important. They suggest that expansions in immigrant entrepreneurship are likely to focus, at least initially, on specific sectors where the foundations have already been laid by existing immigrant entrepreneurship.

We have much to learn about immigrants in our economy, but the initial evidence on immigrant entrepreneurship is encouraging.

William Kerr is a professor at Harvard Business School.

Papers discussed:

  1. Kerr, Sari Pekkala and William Kerr. 2015. Immigrant entrepreneurship. Working Paper, NBER Cambridge, Mass.
  2. Kerr, William and Martin Mandorff. 2015. Social Networks, Ethnicity and Entrepreneurship. Working Paper 21597, NBER Cambridge, Mass.