Took our jobs, took our businesses? American entrepreneurs and immigration.
Just about everyone has heard something of the debate over how immigrants affect the jobs and wages of natives. The general consensus in economics is that immigration has neutral to positive effects on the average native. This can happen because immigrants aren’t just substitutes for the native labor supply- they can also be complements for native labor, and their consumption increases the demand for American goods. Much ink has been spilled over the remaining contentious point of whether any major group of natives is harmed even if most Americans aren’t, with Borjas and some others finding that low skilled Americans see a slight wage decline, and Peri and others arguing they don’t.
One often-cited reason that immigration can benefit natives is that immigrant entrepreneurs start businesses that end up hiring Americans. But this point relies on one crucial assumption- that the immigrant-founded businesses aren’t simply displacing native-founded ones. While there has been a huge body of research on whether immigrants take American jobs and wages or not, there has been drastically less written on whether immigrants “take” American businesses. Perhaps immigrants willing to accept lower profits push out native businesses.
Keshar Ghimire, an economics PhD candidate at Temple University, answers the question in his innovative job market paper. A straightforward way to go about this would be to see whether states with more immigrant-founded businesses have fewer native ones. Keshar does this and finds that states with more immigrant-founded businesses actually have more native ones. But, he argues, this may simply be because some states are better for business and so attract both types of entrepreneurs, rather than immigrant entrepreneurs actually causing natives to start businesses.
To determine the real effect of immigrant businesses on native ones, he needs to find a change in the number of immigrant entrepreneurs in a state that wasn’t just caused by changing business conditions affecting everyone; it should be something that only affected immigrants. He finds such a change following the 1996 welfare reform. The national reform largely removed immigrants from eligibility for welfare. But 15 “generous” states allowed immigrants access to the new State Children’s Health Insurance Program (S-CHIP), which provides insurance for children whose families have relatively low income but who are too wealthy to qualify for Medicaid. Keshar finds that these states got a huge 22% increase in immigrant entrepreneurship. While my own work shows that health insurance isn’t always a barrier to entrepreneurship, one good study found that Medicare leads to a similar increase, so I find this plausible.
So what happened to native entrepreneurs in the 15 states that got this big influx of immigrant entrepreneurs? Keshar finds that they were not scared off. There was no change in the amount of unincorporated businesses owned by natives in these states relative to the others. The number of natives with incorporated businesses actually went up- so much that every two new immigrant businesses lead to one new native business. It turns out that just like workers, businesses can complement each other rather than only compete.
In sum, more immigrant entrepreneurship actually attracts native entrepreneurs rather than scares them away. I hope that this finding will make it in front of states considering S-CHIP eligibility, and in front of the US Congress debating immigration- especially on whether we should create a “founder visa” easing the way in for those who plan to start businesses, as some other countries have.