Reconsidering Immigrant Entrepreneurship -- Executive Summary

Reconsidering Immigrant Entrepreneurship —
An Examination of Self-Employment Among Natives and the Foreign-Born
by Steven A. Camarota
January 2000, ISBN 1-881290-05-0

Executive Summary

One of the most common perceptions of immigrants is that of businesses owner: Stories of immigrant businesses revitalizing neighborhoods or playing a leading role in a particular industry have become a staple of immigration news coverage; advocates often argue for high levels of immigration on the grounds that immigrants infuse the country with an entrepreneurial spirit unmatched by natives; and Stephen Moore of the Cato Institute, one of the nation's leading immigration advocates, argues that immigration should be increased further because one of the distinguishing characteristics of immigrants is their "very high levels of entrepreneurship." Conservative commentator Joel Kotkin observes, "Today's immigrants be they Asian, European, or Latino are refueling our entrepreneurial economy." Unfortunately, generalizations of this kind often have been based on anecdotal evidence or an examination of only one immigrant group or immigrants in only one industry.

Drawing conclusions about overall levels of immigrant entrepreneurship from limited samples and unrepresentative populations is like trying to determine the level of criminality among immigrants by looking at the prison population in a high-immigration state like California. While immigrants make up a very large share of inmates in that state, it would be unfair to draw the conclusion that immigrants are disproportionately criminals. One would need to know what share of the total population immigrants account for in that state before making generalizations about immigration and crime. The same is true when examining entrepreneurship.

Unfortunately, most of the media coverage of immigrant entrepreneurship fails to place it into any kind of demographic context. In an effort to correct this situation, this reports looks at the self-employment patterns of all immigrants in order to determine the actual impact of immigration policy on the overall level of entrepreneurship in the United States. Using data collected by the Census Bureau, the report compares immigrant and native full- and part-time self-employment rates, self-employment income, the number of workers employed by immigrant and native businesses, and other characteristics. The findings indicate that while immigrants were once significantly more entrepreneurial than natives, this is no longer the case. Since 1980, immigrants and natives exhibit remarkably similar levels of entrepreneurship.

Findings

The non-farm self-employment rate of immigrants has fallen from 13.8 percent in 1960 to 11.3 percent in 1997. Over the same period, the self-employment rate for natives increased from 9.6 to 11.8 percent (see Figure 1 on page 8 ). As result, natives are now slightly more likely to be self-employed than immigrants, a reversal of the historic pattern. Natives are also slightly more likely to be self-employed on a part-time basis.
If self-employed farmers are included, the native advantage is even larger. In 1997, 12.3 percent of natives (including farmers) where self-employed, compared to only 11.4 percent of immigrants.
The presence of immigrants has no effect on the overall level of entrepreneurship in the United States. In 1997, 11.7 percent of all adults (including immigrants) were self-employed. Without immigrants, the rate would have been 11.8 percent.
The average annual income of self-employed immigrants is $20,710, somewhat higher than the average native self-employment income of $18,509. However, the majority of both immigrant and native entrepreneurs have very modest incomes, with more than half of both groups either losing money or earning less than $10,000 a year from their businesses.
There is no significant difference in the number of workers employed by immigrant and native entrepreneurs, with 86 percent of native- and 87 percent of immigrant- operated businesses employing fewer than 10 workers.
Even in the central cities of the nation's metropolitan areas immigrants are not more entrepreneurial than natives. The self-employment rate of natives and immigrants in central cities is exactly the same 10.3 percent.
There is almost no difference in the self-employment rate of immigrants and natives in the nation's major immigrant-receiving states and metropolitan areas.
The presence of immigrants as entrepreneurs or their availability as workers has no obvious effect on entrepreneurship activity in a metropolitan area. The total self-employment rate (native and immigrant) in the top immigrant-receiving cities is 11.4 percent. In contrast, the total self-employment rate in the rest of the country is 11.8 percent.
Immigrant entrepreneurs do not significantly affect the mix of businesses in the American economy. Based on the distribution of self-employed immigrants across industries, the types of businesses started by immigrants and natives are very similar.
While there is little difference between the entrepreneurship of natives and immigrants as a group, there are substantial differences between immigrants from different parts of the world. Immigrants from the Middle East, Europe, and East Asia have the highest self-employment rates and incomes, while immigrants from Mexico, Central America, and the Caribbean have the lowest.
Difference in education levels and duration of stay in the United states explain some difference among immigrant groups' level of self-employment. However, culture and other factors also play an important role in entrepreneurship.

Why Study Immigrant Entrepreneurship?

The entrance of over one million legal and illegal immigrants each year in the 1990s has wide ranging effects on the United States. In recent years there has been growing concern over high poverty rates and welfare use among immigrants, as well as their impact on schools, public coffers, and job competition with natives for low-wage jobs. What's more, because immigration has become the primary factor driving population growth in the United States, many worry that immigration worsens the problems of pollution, congestion, and sprawl. However, a number of authors have argued that high rates of entrepreneurship among immigrants offset, at least in part, the costs associated with immigration. If immigrants were significantly more entrepreneurial than natives, it certainly would be relevant to the immigration debate because it would mean that immigrants have a positive effect on the economy well beyond their numbers. By starting businesses at higher rates than natives or businesses that are very different from those operated by natives, immigrants could create new employment opportunities for native-born workers and more choices for consumers.

The results of this report, however, indicate that immigrants are not more entrepreneurial than natives. The presence of immigrants has no appreciable effect on the overall level of entrepreneurship in the United States. Instead, immigration increases the number of business owners creating jobs at about the same rate as it increases the number of people looking for jobs. The findings of the report also indicate that immigrants do not operate businesses much different from those operated by natives: The distribution of immigrant and native business across industries is very similar. There is also no indication that immigrants in the central cities of the nation's metropolitan areas are more entrepreneurial than natives the two groups have exactly the same self-employment rates. All the evidence examined in this report indicates that immigration is an unlikely vehicle for increasing entrepreneurship in the United States. Therefore, the debate over immigration instead should focus on other areas where immigrants actually do create real benefits and impose real costs on the United States. Entrepreneurship is simply not one of those areas.

Data and Methodology

Estimates of immigrant entrepreneurship in this paper are based on data from the last four Decennial Censuses as well as a combined sample of the March 1997 and 1998 Current Population Surveys (CPS) collected by the Census Bureau. All persons not born in the United States, one of its outlying territories, or of American parents living abroad are considered immigrants. All persons born in the United States, including the children of illegal aliens, are considered natives. While the Census Bureau refers to individuals born outside of the United States as "foreign-born", in this report foreign-born and immigrant are used synonymously. The March CPS is used because it contains an extra-large sample of Hispanics and is considered the best source of information collected on immigrants between the Censuses.

Both the Census and CPS ask respondents if they are self-employed. This question is used to determine self-employment rates for immigrants and natives. For the CPS, self-employment is based on whether the respondent was self-employed in the previous year of the survey. Annual self-employment income (revenue minus expenses) is also based on the previous year. Therefore, self-employment rates and incomes from the March 1997 and 1998 CPSs are for 1996 and 1997 respectively. Unless otherwise indicated, analysis in this study is confined only to employed persons 25 years of age and over who are not farmers.

What Explains the Myth of Immigrant Entrepreneurship?

If immigrants are not more entrepreneurial than natives, why does the stereotype continue to exist? It is certainly common for public perceptions to be incorrect about economic and demographic facts. For example, a number of surveys show that the public thinks teenage mothers make up the majority of the people on welfare, when in fact, administrative and other data clearly show that this is not the case. Another example of mistaken public perceptions is that most Americans, including minorities, overestimate by at least a factor of two the percentage African-Americans represent in U.S. population. We should therefore not be surprised that the perception of immigrant entrepreneurship also turns out to be incorrect. Only with a large, scientifically collected survey like the CPS or a national census is it possible to get an accurate economic or demographic picture of the nation.

While mistaken impressions may be common, it does not explain why the impression of immigrants as highly entrepreneurial exists in the first place. Three factors probably account for the stereotype: First, the fact that immigrants were once much more likely to be self-employed than natives may explain why the perception of immigrants as highly entrepreneurial exists. Many observers may simply be ascribing the traits of past immigrants to today's immigrants. Second, high levels of entrepreneurship among some immigrant groups may also account for the perception of immigrants as uniquely entrepreneurial. Elevated rates of entrepreneurship for Koreans and Middle Easterners, for example, may be falsely attributed to all immigrants. Third, policy makers, the public, and even reporters are more likely to come into contact with immigrant entrepreneurs than with immigrant workers. The immigrant restaurant owner who greets customers is much more likely to be remembered than are the immigrant cooks and dishwashers, whom the patron never sees. Most Americans have much more personal contact in their daily lives with self-employed immigrant street vendors or kiosk operators than with immigrant farm labors or construction workers. Since most people make generalizations based on their own experience, it is not surprising that they see immigrants as particularly entrepreneurial.

Conclusion

Like the negative stereotype of immigrants as predisposed toward crime, the positive stereotype of immigrants as super-entrepreneurs turns out to be incorrect. Both Census and CPS data indicate that a higher rate of entrepreneurship is not a distinguishing characteristic of immigrants. In terms of self-employment rate, income, and number of workers they employ, immigrants and natives are remarkably similar. As a result, immigration has no discernable effect on the overall level of entrepreneurship in the United States. Therefore, by itself, immigrant entrepreneurship cannot be used to justify or oppose current immigration policy. One must look elsewhere to make a case for or against immigration. There is no question that immigration has real effects on the United States, but increasing the level of entrepreneurship is not one of them. As immigration continues to be the subject of intense national debate, the focus should be on those areas where immigration creates real costs and benefits.