Entrepreneurship Oct 5, 2020
Immigrants to the U.S. Create More Jobs than They Take
A new study finds that immigrants are far more likely to found companies—both large and small—than native-born Americans.
Few topics divide Americans and policymakers as starkly as immigration. One argument of those who oppose immigration is that adding immigrants to the labor pool will worsen employment opportunities and wages for native-born Americans.
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“The idea is that immigrants come to your community and they take jobs,” says Ben Jones, a professor of strategy at Kellogg. “That could mean that people already in the community could have more trouble finding a job or, by having to compete with immigrants for jobs, could get paid a lower wage.”
The logic is straightforward. Yet curiously, the economic data have not generally borne this out. Previous studies have not found lower local wages after influxes of immigration. In fact, regions of the U.S. that have historically seen more immigration have actually experienced higher gains in per-capita income. “They seem to be the outperformers,” says Jones.
So what is going on?
Jones and his colleagues wondered if economists and policymakers had been focusing too much on immigrants as employees in the labor pool—and not enough on the role they also play as job creators: entrepreneurs who might start and grow lucrative companies, ultimately employing large numbers of people. The conspicuously high number of immigrant founders in Silicon Valley, including prominent examples such as Sergei Brin and Elon Musk, suggests the potential importance of this view.
“We know already that immigrants tend to be entrepreneurial,” says Jones.
So in a new study, Jones and his colleagues—Pierre Azoulay of MIT, Daniel Kim of University of Pennsylvania, and Javier Miranda of the U.S. Census Bureau—took a more comprehensive look at how immigration shapes the economy. They analyzed immigrants’ contributions as both employees and founders, focusing on both the number and the size of companies that immigrants start.
“The question from a job-creation point of view isn’t just ‘Has someone started a business?’ says Jones. “A critical piece is ‘Is it a tiny business or a big business?’ Because if it just employs a few people, that’s not going to have a huge job-creation effect. But if we’re talking about Tesla or Google, if we’re talking about large companies that grow to be large employers, then obviously the job-creation effect can be very strong.”
Their analyses revealed that immigrants do start companies at higher levels than native-born Americans—and that this is true for both small companies and very large ones. This led the researchers to an intriguing conclusion.
“Immigrants actually create more jobs than they take,” says Jones.
Quantifying Who Becomes a Founder
In order to get a more complete picture of how immigration affects the economy, researchers needed to quantify the rate at which both immigrants and U.S.-born workers start companies.
“Take all the immigrants in the economy,” says Jones, “What fraction of them start a business? Then do the same thing for all the native-born workers in the United States. What fraction of them start a business?”
To find out, they analyzed three different datasets. The first drew from the U.S. Census Bureau’s Longitudinal Business Database, which included information on every new business founded between 2005 and 2010 that lasted at least five years—for a total of 1.02 million firms.
For each new business, the researchers used W-2 records from the firms’ founding year to determine which people were part of the founding team, and Census demographic records to classify each of those individuals as either U.S.-born or an immigrant. This enabled the researchers to calculate the rates at which both the immigrant and American-born workers in the database became founders.
“That dataset is especially powerful because it’s every single observation of every worker in every new business,” says Jones.
However, despite its comprehensiveness, the first dataset only included recently founded businesses. So in order to account for more mature companies, the researchers also analyzed a representative sample of 200,000 firms from the U.S. Census Survey of Business Owners.
“Ironically, the result is exactly the opposite of the usual narrative. It seems like immigrants actually improve the economic outcomes for native-born workers.”
— Ben Jones
“Here you’re seeing a cross-section of all the businesses in the economy,” says Jones.
Again, they used founders’ nation of origin as logged in the Census data to determine whether they were an immigrant or U.S.-born. And then, using estimates of the total number of immigrants and U.S.-born workers in the economy, they calculated the rate of entrepreneurship for each group.
Finally, the researchers performed the same analysis for the 2017 Fortune 500, which represented the 500 largest firms in the United States.
“This last approach allows us to really focus in on the very largest businesses in the economy. And, of course, these businesses are especially important,” says Jones, “because they employ so many people. One very large company employs far more people than a large number of relatively small companies. So we went through all the Fortune 500 companies using teams of research assistants, who traced back to the origin of the company to see who the founders were and whether they were U.S.-born or immigrants.”
The researchers were able to track down this information for 449 firms, 96 of which had at least one immigrant founder.
Immigrants Are More Likely to Found Firms of All Sizes
Despite the differences in the three datasets, researchers saw a remarkably stable pattern across all of them: immigrants founded firms at a higher rate than native-born Americans.
“Looking at any of those datasets, immigrants are overrepresented among the founders compared to how many immigrants there are in the population, either today or at the time [of their company’s founding],” says Jones.
For instance, 0.83 percent of immigrants in the workforce between 2005–2010 started a firm, while just 0.46 percent of U.S.-born ones did. The survey data, which also take into account older and more stable firms, found that 7.25 percent of immigrants were entrepreneurs, compared with about 4 percent of native-born individuals.
In both these cases, says Jones, “the rate of founding businesses is 80 percent higher among the non-U.S.-born than among the U.S.-born.”
The same general trend was also borne out among fortune 500 firms.
Critically, the researchers also found that immigrants founded firms of all sizes at a higher rate than those born in the U.S.: small firms, large ones, and everything in between. This is important because it suggests that that the net influence of immigrants on the economy is to increase the demand for labor, ultimately pushing up overall wages.
Jones points out that if immigrants behaved exactly like American-born founders—founding firms of the same sizes at the same rates—they would help to grow the scale of the economy but not actually impact income per person or wages for the typical American-born worker. That’s because, while there would be more businesses and more jobs created, there would be proportionately more workers to fill them, resulting in no change to the actual demand for labor. But because immigrants are more entrepreneurial than American-born workers in both the number and the success of the companies they start, their presence in the country actually increases the demand for labor, to the benefit of workers.
These findings were extremely robust, holding even when researchers accounted for all plausible estimates of the number of immigrants (including undocumented immigrants) in the U.S. at a given time.
Jobs That Pay Better
The researchers also looked at the quality of the companies and jobs created by immigrants. First, they analyzed how innovative their firms were as measured by the number of patents granted to them.
“Not only do these immigrant firms create more jobs, they are also much more inventive. They’re more likely to have patents than U.S.-founder firms,” says Jones.
Then the researchers looked at the wages paid out by firms started between 2005 and 2010 with immigrant versus American-born founders.
“You might think, immigrant firms have a lot of jobs, but are they good jobs? Are they good paying jobs? It turns out, if anything, the immigrant-founded firms pay somewhat higher wages than the native-founded firms,” says Jones.
Improving Economic Outcomes
Overall, the researchers conclude, the evidence is clear: immigrants create more jobs than they take.
“Ironically, the result is exactly the opposite of the usual narrative,” says Jones. “It seems like immigrants actually improve the economic outcomes for native-born workers.”
So why are immigrants so much more entrepreneurial than individuals born in the U.S.? The research doesn’t explicitly unravel the answers to this question, but Jones raises several potential factors.
For one, recent immigration policy prioritizes highly talented workers. “It’s much easier to get a green card in this country if you are extremely skilled and qualified,” says Jones.
More broadly, however, he points to the qualities that might lead an individual to move to another country. “Who would choose to emigrate? What is the personality type or the skill type that encourages someone to cross the world?” he asks.
“People who are willing to pick up and move to another country—into the unknown—are risk takers. And there are empirical studies that indicate this,” he says. “They are going to be masters of their own destiny. And that is a personality trait of entrepreneurs.”
Ultimately, he says, what is clear is that economic arguments people use against immigration “appear flatly wrong—immigrants are powerful job creators.”
This research could bolster the efforts of many in the business and policy communities who see great economic advantages from immigrants. Still, Jones is not confident that even a study of this size and comprehensiveness will change the tune of the most ardent opponents of immigration.
“Getting the economics right can change the debate,” he says, “but to the extent that noneconomic perspectives dominate thinking in swathes of the electorate, and their political representatives, immigration-policy reform will continue to be a challenge.”
Jessica Love is editor-in-chief of Kellogg Insight.
Azoulay, Pierre, Benjamin Jones, J. Daniel Kim, and Javier Miranda. 2020. Immigration and Entrepreneurship in the United States. Working paper.
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