The role of immigrants in the American job market has long been a contentious political issue. Cutting through the noise, a team of researchers from MIT, Northwestern University, the University of Pennsylvania, and the US Census Bureau crunched the data in order to measure the impact of immigration on the US labor market.
Their article, published in American Economic Review: Insights, found that immigrants more often play the role of “job creators” than “job takers” at every level of business: they tend to start more successful small, medium, and Fortune 500 companies than American-born entrepreneurs—and they also tend to pay (slightly) higher wages.
Let’s take a look at what they found.
The notion that immigrants “take jobs” is part of a longstanding bias in American culture—the authors found evidence of this sentiment dating back to at least 1963. Today, immigration remains a wedge issue between political parties. As the authors show, the immigration myth is untrue: studies reveal that mass migration brings with it substantial per-capita income gains.
That said, nothing in this paper speaks to border issues or legal versus illegal immigration, nor competing political philosophies. The focus is on jobs—how immigrants fare as both workers and founders of firms.
For their research, the authors pulled data from three sources:
- Administrative records for every US-founded firm between 2005-10
- The US Census’s Survey of Business Owners
- The Fortune 500
These data sets allowed the researchers to study businesses of every size. They then coded the founders as either US-born or immigrant.
The top-line results:
- Immigrants start firms at higher rates than US-born individuals
- Immigrants start businesses at every size, not just small firms (as is sometimes perceived)
- Immigrants disproportionately hold STEM degrees
- Immigrants disproportionately account for US patents (firms with an immigrant founder are 35% more likely to hold patents)
As many firms have co-founders, which could produce a mix of immigrant and native individuals, the authors bucketed immigrant-only firms, then looked at the “lead” individual of companies that have a variety of founders. They countered by including the highest-paid individual or the founder with the most ownership shares. For more complex companies, they used a proportional assignment.
This follows up on research conducted by the Center for American Entrepreneurship, whose 2017 report found that 43 percent of Fortune 500 companies were founded or co-founded by immigrants (or their children). On a more granular level, the report discovered that immigrant-founded firms comprise 52 percent of the top 25 Fortune 500 companies.
In their book, Good Economics for Hard Times, economists Abhijit Banerjee and Esther Duflo point out four reasons why immigrants are important workers and job creators:
- Newcomers spend money, which translate into more local jobs
- Human labor slows down the process of mechanization
- Immigrants tend to take low-skilled jobs, which has the knock-on effect of bumping other workers in these fields up to higher-skilled positions
- Immigrants are willing to take jobs that others aren’t willing to do, fulfilling necessary functions in that region
Seeing the future
All told, immigrants are highly entrepreneurial and their firms pay slightly higher wages (0.7%) than businesses run by native-born individuals. As they write,
Overall, these findings suggest that immigrant founders not only are substantial job creators but also do not appear to create lower paying jobs.
The authors found that immigrant-run companies are more prevalent in Silicon Valley, and that they produce high social returns from innovation investments as well as raise standards of living by focusing on technological solutions.
Interestingly, the researchers speculate that immigrants could be influenced by America’s “frontier spirit” and are less risk-averse than native-born individuals. Whether their entrepreneurial spirit comes from necessity—immigrants have fewer opportunities for employment, and so start companies—or by other cultural factors remains an open question.
In conclusion, the authors hope this research will help alleviate tensions between labor analysis that dominate headlines and influence political division. Instead of depressing wages and taking jobs, the data support immigrants as job creators that drive society forward.
As they conclude,
Immigration can not only raise workers’ wages but also lower income differences between a worker and a given business owner. Embracing these dimensions in further research can help develop an increasingly full picture of migration and its effects.