That immigration has a profound impact on innovation, and especially on entrepreneurship, is well established. Indeed, analyses suggest that between 2008 and 2012, immigrants accounted for 25% of new employer businesses. A similar proportion of self-employed individuals are also foreign-born.

What is less clear is the role immigration in the workplace plays in the creation and scaling of new firms. New research from Harvard Business school aims to shed new light on the hiring practices among immigrants in newly founded businesses. Do founders tend to recruit from similar backgrounds to themselves or are they fishing in a more diverse pool?

Co-ethnic hiring

The analysis found that co-ethnic is actually surprisingly common, with around 22% of recruits coming from the same ethnic group, with some firms having over 40% of their workforce from the same background.

Perhaps unsurprisingly, this number is highest when there is a large local ethnic workforce and a greater linguistic distance to English.  What’s more, if there is a relatively low cultural similarity to US natives and a harsh policy environment towards immigrants, these too can support co-ethnic hiring.

“We observe remarkable persistence in co-ethnic hiring,” the researchers say. “Even five and ten years after the establishment birth, the co-ethnic share tends to increase slightly, rather than abate.”

Sensible strategy

As an approach, co-ethnic hiring appears to be a sensible one, as the researchers found that it was associated with higher survival rates for startups, with higher growth rates also common.  This was especially the case when the business was surrounded by thick local ethnic employment.

“The pattern of results is most consistent with a blend of co-ethnic hiring due to informational advantages within ethnic groups alongside taste-based hiring,” the researchers explain.

Given the prevalence of immigrant entrepreneurs in the United States, the results are important. Not only do these businesses provide a healthy source of innovation and growth, but they’re also significant in terms of new job creation across the economy.

That so many of these firms have a predilection for hiring co-ethnic employees has clear policy implications, and this is set to be the topic of follow-up research by the team. The researchers also want to further explore the impact of this co-ethnic hiring on the careers of those recruited.

“Such an inquiry can examine traits of the Örst job (e.g., comparability of wage levels and growth, job duration) and also the ability to jump later to new positions or open new businesses,” the authors conclude. “These studies on how human capital develops for individuals over their careers will help discern the degree to which co-ethnic hiring is a boost or opportunity for immigrants when labor market access is di¢ cult vs. a cul-de-sac that provides less long-term assimilation and growth.”