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Why Immigrant Startups are Making the Recovery Happen

The latest Kauffman Index on business creation is the latest proof the economy is on stable footing, and immigrants are leading the way.
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Like the green shoots of spring, the signs of an economic recovery are everywhere. Now comes word from the annual Kauffman Index of Entrepreneurial Activity, released Wednesday, that the number of new businesses created last year also points the way to a rebound.

New construction and services businesses led the way, but immigrant entrepreneurs drove the numbers, creating new businesses at almost twice the rate of native-born business owners in 2013, according to the survey, produced by the Kauffman Foundation.

"The 2013 business creation rate signifies a return to levels that we haven't seen since before the recession," Dane Stangler, vice president of research and policy at Kauffman, said in a statement. "While we have speculated in recent years that changes in entrepreneurship rates could be driven by labor market conditions, this new data provides the strongest evidence we've seen of this correlation."

The index, which gauges different aspects of new business creation, relies on data from the U.S. Bureau of the Census and the Bureau of Labor Statistics, including the Current Population Survey.

Although the composite index score decreased to 0.28 percent in 2013 from 0.30 percent in 2012--the second year of a decrease--the rate returns to levels more typically found in the decade prior to the Great Recession, starting December 2007, the report said. Nearly half a million new businesses were created each month in 2013.

During the recession, higher levels of business creation, with rates fluctuating between 0.32 percent and 0.34 percent, meant more people started new businesses because the labor market was poor and they were unable to find jobs after being laid off.

"The share of new entrepreneurs who are not coming directly out of unemployment was substantially higher than at the end of the Great Recession," the report said.

About 80 percent of new entrepreneurs are not starting businesses as a direct result of unemployment, Kauffman says, an increase of four percentage points compared to 2009.

Meanwhile, immigrants drove much of the new entrepreneurial activity at a rate nearly twice as high as U.S. natives. The index for immigrant business creation stands at 0.43 percent, compared to 0.28 for natives in 2013. Although the immigrant business creation rate decreased 0.06 percentage points from 2012, the drop puts these businesses back at pre-recessionary levels, Kauffman reported.

By sector, new construction businesses increased the most in 2013, at a rate of 1.27 percent. That compares to rates of 0.10 percent for manufacturing and 0.37 percent for service businesses. Construction and manufacturing business creation is currently higher than levels achieved prior to the recession, whereas service business levels are still lower than pre-recession levels.

Almost every age group experienced decreases in company creation. Those between 45 and 54, however, experienced an increase, with the index for this group jumping 2 basis points to 0.36 percent

And by gender, new businesses opened by men decreased significantly to 0.34 percent in 2013, compared to 0.38 percent in 2012. Meanwhile, the rate of women starting new companies was essentially flat year over year at 0.22 percent. Men have returned to their pre-recessionary rates, while women are still lower.

One important negative trend to emerge from the research: Veteran-owned businesses seem to be vanishing. In 2013, about 5 percent of new businesses were started by veterans, compared to 10 percent in 2003.

That’s "primarily due to the declining share of veterans in the U.S. working-age population," the study said.

Last updated: Apr 9, 2014

JEREMY QUITTNER | Staff Writer | Staff Writer, Inc. and Inc.com

Jeremy Quittner is a staff writer for Inc. magazine and Inc.com. He previously covered technology for American Banker and entrepreneurship for BusinessWeek.




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