Immigrant Entrepreneurs Outpace Native-Born Americans
Immigrants started businesses at a higher rate than native-born Americans in 2005, according to the Kauffman Index of Entrepreneurial Activity.
The study, released May 23 by the Ewing Marion Kauffman Foundation, a Kansas City Mo.-based entrepreneurship organization, found that the rate of entrepreneurial activity for immigrants in 2005 was 0.35% (or 350 out of 100,000) compared to 0.28% (or 280 out of 100,000) for native-born Americans.
However, the rate for immigrants declined in 2005, from 0.41% in 2004. The study did not differentiate between legal and illegal immigrants.
For immigrants who face limited opportunities in the labor market -- because they don't speak English well, or because their educations do not translate well in the U.S.-- starting a business makes sense, according Robert W. Fairlie, an associate professor at the University of California at Santa Cruz, who developed the Kauffman Index.
"Immigrants have to be somewhat entrepreneurial to leave their home country and choose to come to the U.S.," Fairlie said, adding that they are therefore more willing to take the risk of starting a business.
"Some people come to this country with a tradition of self-employment within their families," said Maude Toussaint-Comeau, an economist with the Federal Reserve Bank of Chicago, who has also studied immigrant entrepreneurs. "These immigrants may see more barriers in the labor market in the U.S. and find it easier to start their own business instead." Ethnic communities provide a network for immigrant entrepreneurs to sell ethnic goods, as well as finding informal types of lending institutions, according to Comeau.
In a separate study using the 2000 Census data, Comeau found that immigrants from the Middle East, Europe, Cuba, and Northeast Asia had the highest rates of self-employment. Comeau also found that immigrants living in metropolitan areas generally have higher self-employment rates than those who do not. The most common industry for self-employed Mexicans, Cubans, and Caribbean immigrants is construction, while Asians tend to be in restaurants and personal care, according to the Census data.
The Kauffman study found that an average of 464,000 people overall started businesses each month in 2005, which is down slightly from 470,000 in 2004. While the overall rate of adult entrepreneurial activity declined slightly in the past two years, the rate of African Americans starting a new business grew.
African Americans were the only major ethnic or racial group to have an increase in the rate of entrepreneurial activity in 2005. The rate for African Americans increased from 0.21% in 2004 to 0.24% in 2005.
The Kauffman Index also broke down entrepreneurial activity by state. Vermont, Colorado, Montana, Wyoming, and Idaho are the states with the highest rates of entrepreneurial activity -- an average of three times higher than Delaware, West Virginia, Alabama, Kentucky, and Pennsylvania, which had the lowest rates.
While the rates for entrepreneurial activity for women have generally remained around 0.24% for the past several years, the rate for men has fluctuated from a low of 0.32% in 2001 to a high of 0.40% in 2003. The entrepreneurial activity for men in 2005 stood at 0.35% and has fallen for two years in a row.
When broken down into age groups, the only one that showed growth in entrepreneurial activity in the past two years was 65 and over -- from 0.16% in 2003 to 0.21% in 2005.
"People are not retiring as soon as they used to," Fairlie said, noting that better health care that has lead to longer life expectancies. "What's to stop them from starting a small business?"