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Lessons from the Kauffman Index: Immigrants are Infused with Entrepreneurial Energy

Kauffman researcher Chris Jackson dives into the Kauffman Index: Startup Activity and emphasizes the importance of the role immigrants play in entrepreneurship.

Entrepreneurship can be hard to quantify. Quantifying the entrepreneurial energy of a community is particularly challenging. While booming communities will claim that they have waves of creative talent with inspiring business ideas ready to lift off, others fret about the lack of such talent, both those that start businesses and those with technical ability to work at them. When these companies innovate and challenge incumbent businesses, a more dynamic economy emerges that allocates resources more efficiently. A dynamic economy, with a higher rate of new firm entry than the 8% we currently see, creates more jobs, infuses markets with competition, and benefits society through a higher standard of living.

One group that has been shown to possess such entrepreneurial energy is immigrants. Throughout American business history, immigrant entrepreneurs have started businesses that have grown to become giants in their field and proven to be a competitive advantage in global competition.

The latest figures from the Kauffman Index: Startup Activity confirm that immigrants continue to be among the most entrepreneurially inclined individuals. As seen in the chart below, an immigrant is nearly twice as likely to be an entrepreneur as a native-born American.

The measure of entrepreneurship used here is called the rate of new entrepreneurs. It is a broad measure that displays how many individuals became entrepreneurs. In 2014, the rate of new entrepreneurs for immigrants was 0.52%, which means that out of every 10,000 immigrants, 52 became entrepreneurs.  

Here we see the rate of new entrepreneurs for the immigrant population has consistently outpaced that of native-born individuals. Not only have immigrants been more likely to become entrepreneurs, but also the difference between the rate for immigrants and the rate for the native population has grown a majority of the years since 2004. Immigrants during this time period have become a stronger and stronger presence as entrepreneurs.

Part of continuing the tradition of entrepreneurship in the U.S. means supporting the immigrants that come to this country to create something new—whether a new life for themselves or a new business.

Policymakers trying to develop an environment that facilitates economic growth and prosperity should be aware of the role immigrants, especially high-skill immigrants, play in entrepreneurial activity. Providing a fair, competitive playing field, and discarding protectionist attitudes for inclusive ones is an important component of creating an environment for entrepreneurship. This not only includes the tangible immigration reforms to facilitate high skilled and entrepreneurial immigrant’s contribution to economic growth, but also the less tangible aspects that welcome immigrants. This includes leadership that projects a visible, welcoming attitude and supports it with local support for new immigrant entrepreneurs.  A recent Kauffman policy digest on immigrants and their contribution to growth explores ways policymakers can turn a welcoming attitude into appreciable policies.

Entrepreneurship is a powerful economic force that can improve lives and help individuals attain economic independence. The Kauffman Index can help policymakers understand exactly how people are engaged in entrepreneurship, and where the economic growth comes from. But without policy adaptations that recognize the sources of entrepreneurial activity and seek to explicitly nurture them, we may unnecessarily burden our productive capacity and fail to reach our economic potential.