One of the more common arguments against immigration is that immigrants are said to take jobs from locals.  If they don’t physically take jobs from them, the added workers in the labor market drive down wages, so natives get lower income as a result.  However it plays out, immigrants are bad for the job prospects of locals.  At least that’s the common narrative.

It’s an argument that while there is a certain logic to it, is not borne out by actual evidence.  Indeed, research from the Kellogg School of Business highlights how areas with more immigration have actually seen higher gains in per-capita income.  The researchers wanted to test whether previous research into the topic had focused too much on the role of immigrants as workers as opposed to entrepreneurs, who might create new businesses that end up employing many people.

After all, it’s well known that immigrants have a higher proportion of entrepreneurship, and the likes of Sergey Brin and Elon Musk provide high profile examples of entrepreneurial immigrants.  To try and gain a holistic perspective on the contribution of immigrants, the researchers assessed both their entrepreneurial contributions and their labor market contributions.

“The question from a job-creation point of view isn’t just ‘Has someone started a business?’,” the researchers say. “A critical piece is ‘Is it a tiny business or a big business?’ Because if it just employs a few people, that’s not going to have a huge job-creation effect. But if we’re talking about Tesla or Google, if we’re talking about large companies that grow to be large employers, then obviously the job-creation effect can be very strong.”

A positive impact

The research confirms that immigrants are starting businesses at a much higher rate than native-born Americans, with this true for both large and small companies, which results in immigrants actually creating a large number of jobs.

The researchers explored the issue in more detail via three datasets, including the U.S. Census Bureau’s Longitudinal Business Database, which contains data on every new business created between 2005 and 2010 (provided the business has survived for at least five years).  This consists of 1.02 million firms in total.

This data was then combined with W-2 records from the founding year of each firm to determine the founding team, with Census data then used to understand whether the founders were immigrants or not.  This was used to calculate comparative business creation rates for immigrants and American-born people.

Finally, this data was augmented with a Census analysis of the Fortune 500 in 2017 to allow researchers an insight into the biggest firms in the economy at that time.

“One very large company employs far more people than a large number of relatively small companies,” the researchers explain. “So we went through all the Fortune 500 companies using teams of research assistants, who traced back to the origin of the company to see who the founders were and whether they were U.S.-born or immigrants.”

Entrepreneurial immigrants

Across all of the datasets, immigrants were clearly more likely to create a business than native-born Americans.  For example, whereas 0.83% of immigrants in the workforce created a business between 2005 and 2010, just 0.46% of native-born Americans did likewise.  A similar trend was observed among Fortune 500 companies.

This greater entrepreneurial proficiency endured for small firms and large firms (and everything in between), which helps to underline the positive impact immigrants are having on the whole economy, especially in terms of the jobs that are created in these businesses, but also in the wages they pay.

Indeed, if immigrants were behaving like Americans, their income on wages for the typical American would be negligible because the number of firms created would be canceled out by the number of new workers in the economy.  By creating firms at a disproportionate rate, however, immigrants are net creators of jobs.

High-quality jobs

The value of immigrants was further confirmed when the researchers explored the quality of jobs (and indeed companies) created by the immigrants.  It emerged that firms created by immigrants tend to be more innovative than those created by native-born Americans (as measured by patents).

This then translates into the wages those firms pay, with the higher quality of the firms themselves translating into higher wages for those people working at them.

Whichever way you look at it, immigrants are beneficial to the economy, whether in terms of new jobs, well paying jobs, or the creation of innovative new firms.  While there has long been a suspicion that anti-immigrant sentiment is driven more by emotion than actual evidence, it’s nonetheless important to keep reminding ourselves of the evidence so that policies can be well thought through and evidence based.  At the moment, it’s far from clear that this is the case.

“Getting the economics right can change the debate,” the researchers conclude, “but to the extent that noneconomic perspectives dominate thinking in swathes of the electorate, and their political representatives, immigration-policy reform will continue to be a challenge.”