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

Self-Employment over the Last Four Decades

Declining Immigrant Self-Employment

Figure 1 compares the percentage of immigrants and natives who are self-employed full-time⁷ from 1960 to 1997. The figure indicates that while at one time immigrants were significantly more entrepreneurial than natives, this is no longer the case. In 1960, 13.8 percent of immigrants were self-employed compared to only 9.6 percent of natives a 4.2 percentage point immigrant advantage. By 1970, the immigrant advantage in self-employment had declined to 2.8 percentage points. Since 1980 the self-employed rates of immigrants and natives have been very similar, with immigrants having only slightly higher self-employment rates in both 1980 and 1990. By 1997, even this very small advantage had entirely disappeared. In fact, natives are now slightly more likely to be self-employed than immigrants, a reversal of what had been true a few decades earlier. Figure 1 indicates that although once true, the conventional wisdom that immigrants are significantly more entrepreneurial than native-born Americans is not correct. At the very least, it is clear that self-employment is not a distinguishing characteristic of immigrants, nor has it been for the past two decades.

What Explains the Decline in Immigrant Entrepreneurship?

Three factors probably account for most of the decline in immigrant entrepreneurship found in Figure 1. First, in recent years a good deal of research has concluded that the average education level of immigrants has fallen relative to that of natives and the needs of the U.S. economy (Borjas 1999; Edmonston and Smith 1997). As will be seen in Table 4, education is positively correlated with self-employment. Therefore, falling relative levels of education are likely to account for some of the decline in immigrant self-employment.

Second, substantial changes in immigration law made in the 1960s, along with other factors, have resulted in a significant shift in the immigrant sending-countries. Prior to the 1960s, immigrants to the United States came overwhelming from Europe. By the 1970s, Latin American and Asian countries had come to dominate the immigrant flow. Because significant differences exist in entrepreneurship by region and country of origin (see Table 9), the changing composition of the immigrant population has likely played a role in the decline of immigrant self-employment.

Third, immigration has been increasing steadily since the 1960s. As result, a larger share of immigrants were new arrivals in 1997 than was the case in 1960. (Since 1980, however, there hass been almost no change in the proportion of immigrants who are new arrivals.) Because newly arrived immigrants are less likely to be self-employed than more established immigrants (see Table 1), the recency of the immigrant population must account for some of the decline in self-employment. All three factors taken together probably explain the decline in immigrant self-employment found in Figure 1. But whatever the reasons for the drop in immigrant entrepreneurship, it is clear that they are no longer more likely to be self-employed than natives.