October 1, 2014

Immigrant Entrepreneurship Puzzle

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A new report just released by the U.S. Small Business Administration examines the contribution of immigrant entrepreneurs to the U.S. economy. The report is very interesting, but it buries a fascinating puzzle about immigrant entrepreneurship.

The report examines data from the Consumer Population Survey and finds that immigrants are 30 percent more likely than the native born to transition from working for someone else into working for oneself (as one’s primary job).

But the report also examines data from the Census and finds that the percentage of immigrants who are working for themselves is almost the same as the percentage of the native born who are working for themselves (9.7 percent of immigrants versus 9.5 percent of the native born).

The data clearly show that the flow of immigrants into self-employment is higher than the flow of native born into self-employment but, at any point in time, the stock of immigrant self-employment and the stock of native born self-employment are close to the same. This indicates that immigrants have a higher rate of exit from self-employment than the native born.

But why are immigrants and the native born essentially equally likely to be entrepreneurs, but with immigrants achieving the proportion of self-employed through much higher entry into and exit from self-employment?

This is a bit of a puzzle; and nothing in the data seems to account for it. It’s not explained by differences in self-employment income. While immigrant-owned businesses make less on average ($46,614) than native born-owned businesses ($50,643), those differences disappear after demographic differences between the two groups are accounted for.

It also isn’t explained by differences in business growth. The study finds that immigrants are more likely to have high sales businesses, but are less likely to have high employment businesses and more likely to have zero employment businesses.

So what’s the explanation?

I don’t have an answer. I’m curious about your thoughts.

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About the Author: Scott Shane is A. Malachi Mixon III, Professor of Entrepreneurial Studies at Case Western Reserve University. He is the author of nine books, including Fool’s Gold: The Truth Behind Angel Investing in America; Illusions of Entrepreneurship: The Costly Myths that Entrepreneurs, Investors, and Policy Makers Live By; Finding Fertile Ground: Identifying Extraordinary Opportunities for New Ventures; Technology Strategy for Managers and Entrepreneurs; and From Ice Cream to the Internet: Using Franchising to Drive the Growth and Profits of Your Company.

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Scott Shane


Scott Shane Scott Shane is A. Malachi Mixon III, Professor of Entrepreneurial Studies at Case Western Reserve University. He is the author of nine books, including Fool's Gold: The Truth Behind Angel Investing in America ; Illusions of Entrepreneurship: and The Costly Myths that Entrepreneurs, Investors, and Policy Makers Live By.

10 Reactions

  1. As the child of an immigrant entrepreneur and attempting to be an entrepreneur myself, anecdotally, I would say that lack of an existing support base + a family in the foreign country is one reason. Any minor setback could have huge repercussions, especially for cultures where community support is highly valued and important to daily life.

    Just my 2c.

  2. As an American in Spirit and a true believer in the idea of America as a melting pot, I am glad to see that the immigrants are important pieces of the entrepreneurship puzzle. You don’t have to go back many generations to find traces from other parts of the world and find that they were attracted to the land of opportunity.

  3. One possibility is the nature of the immigrant experience. Immigrants often come to this country with limited job options and face more barriers to traditional employment than natives. This is often true for even educated immigrants. Because of this, initial jobs are often low level with limited advancement opportunities.

    They see small business and self-employment as the only way to advance economically so they pursue it. And when they fail they try again and again, bouncing back and forth between self-employment/small business ownership and jobs until they create a business that works – or they gain enough experience and contacts to get a higher level job.

    In our work on cross border social networking we saw many examples of this across multiple immigrant groups. We were amazed at the resilence and determination of immigrant entrepreneurs to keep trying until they made it.

    A second possibility is the stock and flow data come from two different sources and time periods.

    Combine this with a demographic group uncomfortable with surveys or revealing data to the government and inconsistent results could happen.

    A boring explanation, but possible.

  4. Very interesting report… Good stuff

    Thanks Scott as always :)

    Mike
    http://www.wannadevelop.com

  5. Scott,

    Immigrants are essentially risk takers. They risked their careers and may be their lives as well by leaving their home country and came to the US looking for opportunities. Entrepreneurship is a natural extension of that risk taking. That could be the reason why there are more entrepreneurs in immigrants.

    Thanks for pointing out the report. I am amazed by these facts:

    “Nearly 30 percent of all new business owners per month in New York, Florida, and Texas, are immigrants.”

    “Immigrant business owners generate nearly $20 billion or one-quarter of all business income in California, and nearly one-fifth of all business income in New York, Florida, and New Jersey.”

    “Engineers from China and India run roughly one quarter of all technology businesses started in Silicon Valley.”

    Chaitanya
    http://www.p2w2.com

  6. Chaitanya,

    Thanks for your comments.

    While the facts you brought out from the report are correct, I think you miss the puzzle here in your comments. You write, “That could be the reason why there are more entrepreneurs in immigrants.”

    This is precisely the puzzle. Immigrants aren’t more likely than non-immigrants to be entrepreneurs at any point in time. They just get to the equal likelihood to being entrepreneurs as the native born by being more likely to start and stop being entrepreneurs.

  7. I’m impressed with the risk taking and work ethic of immigrants, and have no clue why the stats say they don’t stick with it. That’s puzzling to me.

    Chaitanya makes a very good point, I think. You have to be a risk taker, period, to leave your home, family, friends, etc. to take off to new lands and try and make a go of it. Maybe the start and stop portion of it is due to the fact that they are making more attempts into entrepreneurial endeavours than native born do.

  8. I must also agree with you Chaitanya. The act of leaving their home for a greener pasture must have been the reason why immigrants are of higher rate as presented in the data. Their acts of doing so — immigration, is a clear indication that they really are into taking risks but of course, we have to note taking risks is NOT enough! There must be a justifiable and concise risk management scheme in doing so.

  9. Maybe it’s exactly because they don’t focus so much on employing other people, as the study shows.
    You can’t really grow without this. And you can’t stand still either.

  10. I think the reason goes back to the same reason made them to be an immigrant. why they moved? well, many of them left their home to achieve their goals in life, which they could not find in their born countries. They had ideas in head, while there has been millions of barriers to develop them. so they moved. and where the condition was good, they started development.

    on the other hand, people born in the country, with all of the opportunities, they really never learned how to use it and value it. In America, if you are only born there, its enough to have minimums for your life, and if you are not motivated enough, then you just sit back and live your life as it is.

    Look at the tables on page 30 of the report, and look at the names of the countries listed there, now think of the situation in those countries. I think by that time you will agree me.

    I think if the results of the report showed anything else, then that could be a puzzle to solve.

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