Immigrants in the U.S. are more likely to start firms, create jobs

Immigrants to the U.S. are more likely to start businesses than native-born Americans are, according to a study that takes a wide-ranging look at registered businesses across the country.

Co-authored by an MIT economist, the study finds that, per capita, immigrants are about 80 percent more likely to found a firm, compared to U.S.-born citizens. Those firms also have about 1 percent more employees than those founded by U.S. natives, on average.

“Immigrants, relative to natives and relative to their share of the population, found more firms of every size,” says Pierre Azoulay, an economist at the MIT Sloan School of Management and co-author of a published paper detailing the study’s results.

Taking firm creation into account, the results indicate that immigration to the U.S. is associated with a net gain in job availability, contrary to the common perception that immigrants fill jobs that U.S.-born workers would otherwise have.

“The findings suggest that immigrants act more as ‘job creators’ than ‘job takers’ and that non-U.S. born founders play outsized roles in U.S. high-growth entrepreneurship,” the authors write in the paper.

The paper, “Immigration and Entrepreneurship in the United States,” appears in the spring issue of American Economic Review: Insights. The authors are Azoulay, who is the International Programs Professor of Management at MIT Sloan; Benjamin Jones, the Gordon and Llura Gund Professor of Entrepreneurship and a professor of strategy at Northwestern University’s Kellogg School of Management; J. Daniel Kim PhD ’20, an assistant professor of management at the University of Pennsylvania’s Wharton School; and Javier Miranda, a principal economist at the U.S. Census Bureau.

Three scales of firms

To conduct the study, the scholars examined three types of data sources. To begin with, the researchers used U.S. Census Bureau data and tax records for all new firms founded in the U.S. from 2005 through 2010, a total of 1.02 million businesses. This allowed them to study firm creation and job growth in those companies over a five-year period.

Of course, many U.S. firms were founded earlier than 2005. To analyze those firms and their founders, the research team examined the U.S. Census Bureau’s Survey of Business Owners from 2012, a periodic survey with data covering 200,000 businesses and including data about the owners. This allowed the scholars to expand the study’s time period and include many larger firms.

However, many of the largest companies in the U.S. do not respond to the Survey of Business Owners. For this reason, the research team also analyzed the 2017 Fortune 500, identifying the citizenship and immigration status of founders of 449 of those companies.

Ultimately, the study showed that 0.83 percent of immigrants to the U.S. founded a firm from 2005 to 2010, while 0.46 percent of native-born U.S. citizens founded a firm in that time. That disparity — the 80 percent higher rate of firm founding — also held up among firms founded before 2005.

“Immigrants found more firms in every bucket,” Azoulay says. “They create more firms, they create more small firms, they create more medium-size firms, they create more large firms.” He adds: “It’s not the case that [immigrants] only create growth-oriented startups. It’s not the case they just create subsistence businesses. They create all kinds of businesses, and they create a lot of them.”

Azoulay emphasizes that the study, focused on the empirical facts about business creation, does not explain why immigrants tend to found firms more often. It may be that some immigrants, finding it hard to access the U.S. workforce as employees, may start service-type businesses instead.

Alternately, some immigrants to the U.S. arrive as students, stay in the country, and found high-growth, high-tech startup firms. The breadth of the overall trend suggests there are likely multiple such scenarios in play at once.

“There can’t be just one explanation,” Azoulay says. “There is probably a different story for the firms that eventually grow to be large, and for the firms that start small and stay small.”

Facts for a larger discussion

As the researchers note, defining whether a firm’s founders are immigrants is not always a straightforward matter. Some firms have multiple founders, representing a mix of immigrants and native-born people.

To address this issue, the scholars tested multiple ways of classifying firm data. In one iteration of the analysis, they allocated credit for firm founding proportionately among founders. In another iteration, they only credited a firm as being founded by an immigrant if the “lead” founder was an immigrant. Still another round of analysis defined a firm as being immigrant-founded if any member of the founding team was an immigrant. All these methodologies yielded the same large-scale trend.

Indeed, as the authors write in the paper, “Immigrants appear to play a relatively strong role in expanding labor demand relative to labor supply, compared to the native-born population.”

Azoulay notes that debates over immigration policy may have many dimensions and are not always going to revolve around the economics. Still, when it comes to that economic impact, and specifically to the issue of job creation and availability, Azoulay hopes the study will provide some baseline data points for public consumption.

“Any discussion needs to start from a common set of facts,” Azoulay says.