Why Immigration Reform Isn’t the Answer to America’s Declining Startup Rate

Source: Created from data from the U.S. Census

The rate at which Americans create new companies has fallen by nearly half over the past thirty-five years — from 2.56 new businesses with employees per thousand people in 1977 to 1.31 in 2012 — data recently released by the Census Bureau reveals. That alarming trend has policy makers scurrying to identify the causes of the decline, and to reverse it.

Some policy researchers affiliated with the Ewing Marion Kauffman Foundation, a non-profit organization devoted to the study of entrepreneurship, have proposed immigration reform as the answer. Dane Stangler, the Foundation’s Vice President of Research and Policy, has claimed (PDF) that the country needs to bring in more foreign-born entrepreneurs to combat the decline in the nation’s start-up rate. Jonathan Ortmans, a Senior Fellow at the Foundation, told the Washington Post that “immigration reforms represent one of the most powerful possible moves lawmakers could take to spur new business formation.”

While immigration reform might be desirable in its own right, the data don’t show that lack of immigration is responsible for the decline in the start-up rate or that more open immigration would be likely to reverse the three-and-a-half-decade-long drop in business formation.

Robert Litan, a Non-Resident Senior Fellow in Economic Studies at the Brookings Foundation and others have argued that immigrants are much more likely than native born Americans to start new businesses. However, the data suggest otherwise. As Steven Camarota, the Director of Research for the Center for Immigration Studies, explains in a 2012 report (PDF):

“There is no meaningful difference between the two groups in self-employment…. Immigrants and natives have very similar rates of entrepreneurship — 11.7 percent of natives and 11.5 percent of immigrants are self-employed.”

Similar patterns can be seen from other data. Bureau of Labor Statistics figures show that in 2013, the most recent year data are available, rates of incorporated self-employment — people working as the heads of their own corporations — among foreign and native born Americans were a statistically indistinguishable 3.8 percent rate for those born outside the country and 3.7 percent of those born inside.

The absence of a higher rate of entrepreneurship in the immigrant community explains why we have not observed an increase in entrepreneurial activity over the past three-and-a-half decades.

As the chart above shows, the foreign born share of the U.S. population more than doubled from 6.2 percent in 1980 to 12.9 percent in 2010, while the rate of new business creation declined 35 percent, from 1.98 new employer businesses per thousand people in 1980 to 1.28 in 2010. If immigrants really were much more likely than the native born to start businesses, then we should have seen a rise in new business creation, as immigration surged over the past three-and-a-half decades.

Contrary to immigration advocates’ claim that encouraging more immigration will boost levels of entrepreneurship in this country, the experience of the past 35 years has shown the opposite to be true. A steep rise in immigration did not lead to a rise in entrepreneurial activity, or even offset the decline in new business creation that we have experienced.

Rather than simply asserting that new policies to stimulate immigration “would increase startup rates” (PDF) in the future, policy makers seriously interested reversing the decline in the rate of entrepreneurship should identify the factors responsible and propose policies to reverse it.

Image Source: Created from data from the U.S. Census


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.

11 Reactions
  1. Seems pretty simple that instead of just adding more people to get more entrepreneurs we should look at what might be deterring entrepreneurship among current residents. I would recommend taking a good hard look at the amount of regulation and taxation. Existing businesses use government regulations to stifle new competitors.

    • While I have a friend who’s run smack into a monopoly regulation, I can only speak for myself, it’s the mighty shaky economy/declining wages. I’m hesitant to invest in equipment to start in a time of – I consider – economic depression. Election contention furthers my sense that disposable income is evaporating. It’s taken quite a bit of work patching together bleeding edge technology, spending time on it, I’m okay with that. Spending funds on it is where I’m apprehensive.

  2. I agree. Immigration has nothing to do with it. Anyone can start a business. Some immigrants are even more well off. So they should take their focus off these to focus on more fruitful efforts.

  3. Before 1965 immigration policy favored western and northern Europe.
    In JFK’s book ” A Nation Of Immigrants ” on page 45 he claims our immigration policy was racist
    because it favored Western and Northern Europe.
    Western and Northern European countries represent about 4% of the world population but have about
    50% of the worlds nobel prizes.
    They also have about one third of the global fortune 500 companies.
    Western and Northern Europe is where physics, chemistry and calculus was developed.
    It is where all of the world industries started.
    It is where gas engines, steam engines, diesel engines, jet engines, and turbine engines were invented.
    Bicycles, motorcycles, cars trains, jet airplanes and helicopters were invented there.
    Electromagnetism was discovered there and generators, motors, and transformers were invented there.
    Electricity was developed there.
    Electromagnetic waves were discovered there and wireless communications was invented there
    Xray, CAT scanners and EKG was invented there. Semiconductors were discovered there. Silicon and
    all the materials used in the semiconductor industry were discovered there. The electron was discovered
    there and the first electronic devices were invented there. Nuclear physics was developed there.
    The rocket technology that put americans in space came from western Europe. The first programmable
    digital computer was invented in western Europe.
    98% of aircraft and computer companies in the U.S. going back to about 1900 were founded by U.S. citizens.
    The U.S became an industrialized country because of immigration from
    western and northern Europe.
    The problem is that western and northern European immigration has been reduced
    and replaced with third world immigration changing the demographics of the country making it more
    like those countries were nothing has been discovered or invented and there are no major companies
    in any industry

    • 60% of the Global Fortune 500 companies are in Europe, Canada, and the U.S.
      30% are in Japan, China, and South Korea.
      I calculated Global Fortune 500 companies per capita in the U.S. and in European countries.
      From all the hype about how entrepreneurial immigrants are you might expect the U.S.
      would be way ahead of European countries. The average for all countries was 2.3 Global Fortune
      500 companies per 5 million population. The U.S. was below average with 2.08 Global Fortune
      500 companies per 5 million population. Most of the immigrant entrepreneur studies I believe
      are flawed or just bogus.

    • There is a big difference between skilled immigrants who followed the laws to get here
      and the flood of poor unskilled workers who come her illegally.

      That’s why the illegal alien advocates pushed the PC concept to call them immigrants, so as
      to muddy the water. Immigrants are those that come here through the legal channels.
      These people are actually criminal citizens of another nation.

  4. When is someone going to talk about how the hiring of illegals is actually killing law abiding businesses. My husband has been in the construction business for 20 years, survived the market crash, but cannot get back on his feet because he is a very small business with American employees. His prices just can’t compete with other companies that hire day labor that will work for nothing and need so little to live because they are satisfied with living in one house with 5 families. I see so few articles about this because the idea is that Americans don’t want those jobs anyway, however, in order to employ Americans it is really expensive. Between workers comp insurance, payroll taxes and insurance, it is impossible to compete with those paying laborers cash under the table. It happens all the time in construction. Our business may soon join the statistics of failed businesses, but not because we aren’t busy or because we don’t offer quality service, but because we abide by employment laws. That factors into why entrepreneurship is down. It is just too hard to compete legally.

  5. Immigration Reform..

    Obama‘s Secret Plan – Immigration Reform “Task Force of New Americans”….

    Barack Obama and his administration appear to be social engineering us into a new America.

    Obama’s Immigration Reform does not just cover those who receive amnesty, it’s all the immigrants he is transporting from all over the Middle East-Se, Africa, Iraq, Iran, Afghanistan, Haiti, Somalia, Sudan, Eritrea, Congo, Cuba and so on.

    Listen to this shocking and frightening interview:


    Full Story