Immigrants and Entrepreneurship (Blog Post)

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© edegan.com, 2016

Immigration and Small Business Every day Sharan Gahunia, owner of Raja Sweets in the Hillcroft area of Houston, Texas, sells mithai and other Indian pastries in the shop her father founded over 30 years ago. When Raja Sweets first opened up, there was little South Asian cuisine and culture within Houston, but through hard work and entrepreneurship, South Asian immigrants like Ms. Gahunia and her father have helped turn the Hillcroft area into a booming cultural center officially recognized as the Mahatma Gandhi district. Immigrant entrepreneurs like the Gahunia family are a key factor in American small business and entrepreneurship. Immigration’s effect on the sector has been documented heavily for years. In 2012 the Small Business Administration reported higher rates in business ownership and business formation among the U.S. immigrant population as compared to the non-immigrant population. The SBA further found that immigrant-owned businesses tend to export to the global market at a disproportionately higher rate as well. What does an Immigrant Entrepreneur look like? Immigrant entrepreneurs are a diverse and growing group. According to statistics from the 2013 American Community Survey, the vast majority of immigrant business owners, 23.4%, originate from Mexico, reflecting the large and long-standing Mexican immigrant population in the United States. The next three countries of origin in terms of raw number of business owners are Korean with 5.1%, and India and Vietnam with Houston's Chinatown is home to many immigrant-run small businesses. https://commons.wikimedia.org/wiki/File:MetropoleCenterHoustonTX.jpg4.1% each. Examining the percentage of business owners by country of origin provides further insight. Iran appears to be the largest exporter of entrepreneurs, with nearly 1/4, or 24.4% of Iranian immigrants in the U.S. owning a business. The next three countries of origin with the highest rates of business ownership are South Korea with 23.1%, Brazil with 21.0%, and Italy with 20.1%. The survey also shows that the distribution of educational degrees among immigrant entrepreneurs is statistically bimodal. 29.8% of immigrant business owners possess a college degree, yet 25.7% of them, the second largest portion, do not have a high school degree. This wide range of educational backgrounds may reflect differences in the immigrant entrepreneur’s countries of origin. Immigrant entrepreneurs tend to live in the larger states, with 27.8% in California, 11.8% in Florida, 10.7% in New York, and 10.5% in Texas. Most immigrant entrepreneurs own either construction or professional service firms, representing 17.2% and 16.7% of all immigrant owned small businesses respectively. The type of work immigrant entrepreneurs engage in is diverse. Ranging from agriculture to finance, 16.2% of all immigrant owned business fall into an impossible to categorize conglomerate "other." In 2014, the Kauffman Foundation found that the percentage of small businesses owned by immigrants more than doubled from 13.3 % in 1996 to 28.5% in 2014. The foundation also showed that immigrants did as well or better than native-born entrepreneurs with “opportunity entrepreneurship.” Immigrants are skilled at finding and filling market gaps -- such as the unmet demand for Indian pastries the Gahunia family exploited. Research even suggests that immigrant entrepreneurs over-perform as compared to non-immigrant entrepreneurs. In a 2015 study, economists Robert Fairlie and Magnus Lofstrom found that immigrants were well suited to entrepreneurship due to ties with already existing immigrant populations, high amounts of family savings, and a lack of pre-existing career that may interfere. What’s even more incredible is that immigrant entrepreneurs overperform despite a lack of support structures and disproportionately low starting resources. There appears to be little doubt as to the impressive role of immigrants in generating small business in America. Who are these immigrant imagineers and does their prosperity benefit the nation economically as a whole? Do Immigrant Entrepreneurs benefit the Nation as a whole? The National Venture Capital Association (NVCA) reported that, "If immigrant-founded venture-backed public companies were a country, then the value of its stock exchange would rank 16th in the world, higher than the exchanges of Russia, South Africa and Taiwan.” These trends hold for privately held venture-backed companies as well. The study found that immigrant entrepreneurs started 30% of these businesses. A substantial amount of academic work has been conducted on the concern that immigration depresses wages. A 2006 article by George Borjas used a regression model of migration and jobs to find a statistically significant relationship. Borjas’ estimates implied that for every 10 immigrants arriving at a location, 1.6 and 2.8 natives leave or lose their jobs. In 2012, Giovanni Peria and Chad Sparber ran found through microsimulation methodology inherent bias in the regression model used in Borjas 2006. Some of Borjas’ specifications had built biases into the model, which casts doubts on his results. The Centre for Research and Analysis of Migration in 2007 used a migration-wage regression to find a positive impact on native wages stemming from immigration. The conclusion of the Centre’s broad sweeping work seems to imply that immigration is good for native wages. Sector-specific work from the University of Michigan showed that wages for computer scientists would have been 2.8-3.8% higher, and the number of Americans employed as computers scientists would have been 7.0-13.6% higher in 2004 if firms could not hire more foreigners than in 1994. In contrast, the study found that total CS employment would have been 3.8-9.0% lower. Consequently, the sector would have lower economic output if firms had these restrictions on foreign recruitment. This work suggests a complex duality of crowding-out effect for wages and a crowding-in effect for overall employment. Looking toward the Future The NVCA study reported that 78% of immigrant entrepreneurs started their business while either on an H1B employer-sponsored or a F-1 international student visa. Further research on these visas and rates of business formation can elucidate the long-term impact of immigrant entrepreneurs. Overall, it appears certain that immigrants perform better as entrepreneurs than native-born individuals. Immigrant entrepreneurs are a diverse and complex group. Like many macroeconomic trends, it is impossible to determine exact cause-and-effect relationships. However, the extensive amount of research done on immigrant entrepreneurs suggest that they are a boon to U.S. entrepreneurship.