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

Introduction

A brief walk through an immigrant neighborhood in any of the nation's cities leaves an impression of intense entrepreneurial activity. Street vendors sell everything from produce to pajamas, while small shops and restaurants advertise in the community's native language. Stories of immigrant businesses revitalizing neighborhoods or playing a leading role in a particular industry have become a staple of news coverage on immigration, and many commentators use immigrant entrepreneurship to make the case for continued high levels of immigration.

Stephen Moore of the Cato Institute, one of the nation's leading immigration advocates, argues that "immigrants are highly entrepreneurial," and that immigration should be increased further because one of the distinguishing characteristics of immigrants is their, "very high levels of entrepreneurship" (Briggs and Moore, 1994, 108,122). "Today's immigrants be they Asian, European, or Latino are refueling our entrepreneurial economy," observes conservative commentator Joel Kotkin (Kotkin, 1991). California businessman and politician Ron Unz goes so far as to say that, "The overwhelming majority of California's immigrants are self-reliant and entrepreneurial..." (Unz 1994, 46). And Julian Simon, one of the country's strongest immigration advocates until his death in 1998, argued that one of the reasons immigration should be increased is that, "immigrants clearly have a higher propensity for self-employment than do natives." (Simon, 1989, 72). ¹

Unfortunately, such observations are often based only on anecdotal evidence or studies of immigrants from one particular country, or only in one city or industry. Drawing conclusions about the overall level of immigrant entrepreneurship from limited samples and unrepresentative populations is not unlike trying to determine the level of criminality among immigrants as a group by looking only at San Quentin prison in California. While it is true that immigrants make up a very large share of inmates in that institution, it would be unfair to draw the conclusion that immigrants are disproportionately criminals; one would need to place incarceration figures from one particular prison into context before making generalizations about immigration and crime. The same is true when examining entrepreneurship. Unfortunately, most media coverage and many commentators fail to place immigrant entrepreneurship into any kind of demographic context.

In order to better inform the public discourse, this report examines immigrant entrepreneurship in a systemic fashion by using the most representative data available collected by the Census Bureau. The purpose of this report is to determine whether immigrants are significantly more entrepreneurial than natives. That is, are immigrants more likely to be self-employed than natives? Do their businesses generate more income than those of natives? And, how do immigrant and native businesses compare in terms of number of employees? In addition, this report compares immigrant and native entrepreneurs across localities and industries as well as differences between immigrants from various parts of the world. 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.

This report is unlike much of the recent work on immigrant entrepreneurship because it does not focus on differences between immigrant groups or factors hindering or facilitating immigrant self-employment (Razin and Light 1998; Fernandez and Kim 1998; Sander and Nee 1996; Yuengert 1995). Instead, it compares immigrants and natives in order to determine immigration's impact on the overall level of entrepreneurship in the United States.

Why Study Immigrant Entrepreneurship?

The entrance of more than one million legal and illegal immigrants each year 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 public schools and job competition with less-skilled natives (Camarota, 1999; Edmonston and Smith 1997; Borjas1999, Freeman and Katz 1997; Borjas and Hilton, 1996). What's more, because immigration has become the primary factor driving population growth in the United States, some have worried that immigration is worsening the problems of pollution, congestion, and sprawl (Beck, 1996; Bouvier and Grant, 1994). However, if immigrants are significantly more entrepreneurial than natives, then this might offset, at least in part, some of the costs associated with immigration. After studying immigrants in California's Silicon Valley, Annalee Saxenian, a professor at U.C. Berkeley, has observed that, "The [immigration] debate must be widened to reflect the new role of immigrant entrepreneurs as creators of jobs, wealth, and global linkages." (Quoted in Van Slambrouck 1999). A Business Week editorial in 1996 conceded that while there are costs to immigration, it "also boosts the country's entrepreneurial energy" (Oct 14, 1996, 142). Professor Ivan Light of UCLA points out that, "Immigrants have had a higher self-employment rate than natives for at least 100 years." High rates of entrepreneurship, he argues, mean that immigrants create more jobs than they take, and this should be taken into account by people who argue against immigration on the basis that it reduces opportunities for natives (Shaughnessy 1995). Saxenian, Light, and many others argue in effect that a full accounting of the costs and benefits of immigration needs to consider the contribution of immigrant entrepreneurs. If immigrants are more entrepreneurial than natives, it certainly suggests that immigrants have a significant positive effect on the economy well beyond their numbers because they are creating new employment opportunities for native workers and more choices for consumers.

On the other hand, if immigrants are less than or equal to natives in entrepreneurship, this would imply that immigration is not a vehicle for increasing the overall level of entrepreneurship in the United States. It would mean, for example, that immigration increases the number of business owners creating jobs at about the same rate as it increases the number of people looking for jobs.² If this is the case, then the presence of immigrants has no discernable effect on the overall level of entrepreneurship in the United States. As a result, Saxenian, Light, Moore, and others are not correct and the debate over immigration should not take into account immigrant entrepreneurship, but instead, should focus on other areas where immigrants actually do create real benefits and impose real costs on the United States.

Data and Methodology

This report draws on data from the last four Decennial Censuses³ as well as a combined sample of the March 1997 and 1998 Current Population Surveys⁴ (CPS). The Censuses are used because they are virtually the only historical data available that identifies persons born outside of the United States referred to as "foreign-born" by the Census Bureau.⁵ (For the purposes of 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 natives⁶. Unless otherwise indicated, analysis in this study is confined only to employed persons 25 years of age and over. In order to avoid confusing the decline in family farms that has taken place over the last half century with other trends in self-employment, self-employed farmers are excluded from the tables in this analysis.