Harvard Business Review: Immigrants as Entrepreneurs

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A study published in the Harvard Business Review details the impact of immigrants on American entrepreneurship. Much of the public debate on immigration ignores the millions of jobs immigrants create in this country. The key findings of the report are:

1. Immigrants constitute 15% of the general U.S. workforce, but they account for around a quarter of U.S. entrepreneurs (which we define as the top three 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 U.S. inventors.

2. Many discussions around immigration and entrepreneurship focus on startups backed by venture capital (VC) firms and entrepreneurs seeking high-growth opportunities that could result in the next Starbucks, Facebook, or Staples. We have merged in data on the firms backed by VC financing. On the whole, immigrant entrepreneurship is somewhat stronger for VC-backed firms, with 31% of VC-backed founders being immigrants, compared to 25% of all entrepreneurs in 2005.

3. 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 (i.e., “mixed founder team”), the average is 16.9 workers.

4. We quantify subsequent firm performance by analyzing employment growth and closure rates. The firms founded by immigrants close at a faster rate than firms founded by natives, but those that survive do grow at a faster rate in terms of employment, payroll, and establishments for the next six years. Previous research has found that this phenomenon — called “up or out” — is how young firms create more jobs. Compared to older firms, which show modest growth regardless of their size, young firms and new entrants have more dynamic patterns that foster greater job creation. Immigrant-founded firms display more of this behavior.

 


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