The Immigrant Entrepreneurship Decline in the U.S.

November 13, 2012

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Foreign-born entrepreneurship spurs job creation and small business revenue in the U.S., yet a new study indicates that immigrant start-ups are on the verge of decline for the first time in a decade.

A recently released report from the Kauffman Foundation,  found that the percentage of immigrant-founded companies nationwide dropped from 25.3 percent in 2005 to 24.3 percent last year. A closer look at Silicon Valley start-ups also revealed a more drastic decline: while 52.4 percent of tech start-ups were founded by immigrants in 2005, that number decreased to 43.9 percent in 2011.

The research was supported by Duke University, Stanford University and UC Berkeley School of Information, and focused on a random sample of 1,882 companies across the United States out of 107,819 engineering and technology companies founded in the last six years. It surveyed business founders from more than 60 countries who had come to the U.S.

For decades, immigrant-founded small businesses have constituted a significant portion of revenue and played a major role in U.S. export rates. A separate report from the bipartisan Partnership for a New American Economy, a coalition of over 450 Republican, Democratic and Independent mayors who support immigration reforms to fuel job creation, underscores the nationwide economic impact of immigrant start-ups compared to native-born businesses.

Key findings from that report reveal that immigrant-owned businesses have “collectively created 4 million jobs that exist today in the U.S.” The results also show that such businesses are 60 percent more likely to export products or services than non-immigrant-owned businesses, while immigrant entrepreneurs are more than two and a half times as likely to found high-exporting companies.

Although most of those businesses are smaller in employee size and payroll compared to non-immigrant-owned businesses, immigrants are opening their company doors at a faster pace, with some groups outpacing others significantly. Out of the 60 countries represented in the Kauffman study, 33.2 percent of founders were Indian, compared to 26 percent in 2005. That group tends to establish their businesses in California, New Jersey and Massachusetts, and founded more engineering and tech firms than other immigrant groups. The report also discovered that the proportion of Chinese startups has increased as well.

Yet the Chinese and Indian immigrant groups are an exception. As the data implies, the number of immigrant-founded companies has started to weaken and the U.S. economy is at risk of losing an important growth engine.

Earlier this year, President Barack Obama stated that the inability to overhaul U.S. immigration laws was the biggest shortcoming of his first term in office, but emphasized that Republican lawmakers were responsible for halting reforms.

Visa issues continue to pose a barrier to immigrant-founded businesses in the U.S., and many are calling for policy changes to ameliorate the problem.

“It is imperative that we create a startup visa for these entrepreneurs and expand the number of green cards for skilled foreigners to work in these start-ups,” according to Vivek Wadhwam, who conducted the Kauffman study and authored The Immigrant Exodus: Why America is Losing the Global Race to Capture Entrepreneurial Talent. “Many immigrants would gladly remain in the United States to start and grow companies that will lead to jobs."

However, not all surveys support the positive view of immigrant influence on economic growth. In the past decade, researchers have examined how immigrant workers have affected the labor market. Some findings have shown that mass immigration displaces U.S. workers with those willing to receive lower wages. In 2010, the Federation for American Immigration Reform revealed that U.S. worker displacement may be as high as 2 million employees per year, but the shifts are primarily in unskilled labor.

Furthermore, "changes in the number of visas granted to skilled workers over several years appeared to have little effect, positive or negative, on the job market for American engineers and scientists," according to WorkPermit.com.

As more immigrants receive an education, including post-graduate degrees, in the U.S., some are faced with deportation and the lost opportunity to contribute to U.S. competitiveness. "As high-skilled immigrants leave the U.S. for increased opportunities at home, they take their specialized knowledge and business elsewhere," Samantha Huan, a researcher for the Kauffman Foundation, explained.

Solutions for immigrant start-ups are already underway. The U.S. Citizenship and Immigration Services’ (USCIS) Entrepreneurs in Residence Program was officially launched this year, and an April summit addressed the “recurring tech industry complaint” about immigrant students leaving and starting businesses in their native countries. Under the residence program, a tactical team comprised of business experts and USCIS employees will work to “identify ways to enhance USCIS policies, practices and training across a range of existing non-immigrant visa categories used by entrepreneurs.”

 

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