Immigrants Play a Disproportionate Role in American Entrepreneurship

Innovation and Economic Growth

Article Snapshot

Author(s)

William R. Kerr and Sari Pekkala Kerr

Source

Harvard Business Review, October 3, 2016

Summary

This study considers the long-term growth of firms founded by immigrants in 31 states. Since the 1990s, immigrants have founded a growing proportion of new firms. Immigrants who arrive in the United States as children are most likely to found new firms.

Policy Relevance

Immigrant-founded firms generate many additional jobs. H-1B visa reform is not the best way to encourage immigrant-founded startups.

Main Points

  • Entrepreneurship has declined sharply in the United States economy over the last thirty years, as there are far fewer startups.
     
  • This study uses data from the Census Bureau to learn about businesses founded by immigrants in 31 states from 1995 to 2008; the data includes large and small firms, those with one or more employees.
     
  • In the 1990s, immigrants founded about 17% of new firms, but the immigrant share of new firms rose sharply, faster than the increase in immigrant employees.
     
    • At the end of the study period, 35-40% of new firms have at least one immigrant as a founder.
       
    • 31% of firms backed by venture capital have an immigrant founder, compared to 25% of all new firms.
       
  • Immigrants usually launch smaller firms than natives.
     
    • On average, firms founded by immigrants have 4.4 workers, compared to 7.0 workers for native-founded firms.
       
    • When the founder team has immigrants and natives, the average is 16.9 workers.
       
  • Firms founded by immigrants close at a greater rate than native firms, but immigrant firms that survive grow faster and create more jobs.
     
  • Expanding the H-1B visa program is not a good way to encourage entrepreneurship by immigrants, because H-1B entrants come to the country to take jobs at large firms.
     
  • Immigrants coming to the United States as children are more likely to start firms than those coming as adults.
     

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