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Immigrant Entrepreneurship Puzzle

A new report [1] 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 [2] 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.