Immigrants play a disproportionate role in American entrepreneurship

By Sari Pekkala Kerr & William R. Kerr

DO immigrants take American jobs, or do they help our economy grow? Do immigrants drain our welfare funds, or can they help refill public coffers as our baby boomers retire?

Our recent research aims to address these questions. We have built a platform that uses restricted-access data from the US Census Bureau to explore differences in the types of businesses formed by immigrants and their medium-term survival and growth patterns.

Here are some key findings:

  • Immigrants constitute 15 percent of the overall US work force, but they account for around a quarter of US entrepreneurs (which we define as the top 3 initial earners in a new business). This is comparable to what we see in innovation and patent filings, where immigrants also account for about a quarter of US inventors.
  • Many discussions around immigration and entrepreneurship focus on start-ups backed by venture capital firms and entrepreneurs seeking high-growth opportunities that could result in the next Starbucks, Facebook or Staples. We have studied the data on firms backed by VC financing. On the whole, immigrant entrepreneurship is somewhat stronger for VC-backed firms, with 31 percent of VC-backed founders being immigrants, compared to 25 percent of all entrepreneurs in 2005.
  • Immigrant founders launch firms that are smaller than native-founded firms. The average initial employment for firms founded by immigrants exclusively is 4.4 workers, compared to 7.0 workers for firms launched exclusively by natives. When both types of founders are present, the average is 16.9 workers.
  • The firms founded by immigrants close at a faster rate than firms founded by natives, but those that survive grow at a faster rate in terms of employment, payroll and establishments for the next six years.

If we use statistical methods to control for a company’s founding location and industry, immigrant entrepreneurs are more likely to survive than their native peers, but they’re only modestly more likely to experience employment growth, and their payroll growth is slower than that of native-founded firms. Thus, much of the growth and volatility of immigrant firms result from where they are founded.

Sari Pekkala Kerr is a senior research scientist at Wellesley Centers for Women. William R. Kerr is a professor at Harvard Business School.



1 comment

  1. Nice insight! A worldwide book/ebook that helps explain America and its business environment to immigrants is “What Foreigners Need To Know About America From A To Z: How to Understand Crazy American Culture, People, Government, Business, Language and More.” Endorsed worldwide by ambassadors, educators, and editors, it aids those who want to learn more about US culture on many issues, including business operations.

    As the book points out, immigrants own 11 percent of US businesses and are 60 percent more likely to start one than native-born Americans. They represent 17 percent of all new business owners (in some states more than 30 percent). Foreign-born business owners generate nearly one-quarter of all business income in California and nearly one-fifth in New York, Florida, and New Jersey.

    Its four business chapters explain how foreigners can succeed in the US business world, from getting a job to owning/starting their own businesses. However, they must understand US culture above all in order to succeed.

    In describing America, chapter after chapter identifies “foreigners” who became successful in the US and contributed to our society, including business people. An entire chapter is devoted to starting and running your own business. However, most struggle in their efforts and need guidance. Perhaps concerned citizens, improved labor-business cooperation, and books like this can extend a helping hand. Here’s a closing quote from the book’s Intro: “With all of our cultural differences though, you’ll be surprised to learn how much our countries—and we as human beings—have in common on this little third rock from the sun. After all, the song played at our Disneyland parks around the world is ‘It’s A Small World After All.’ Peace.”

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