Reconsidering Immigrant Entrepreneurship: An Examination of Self-Employment Among Natives and the Foreign-Born

By Steven A. Camarota January 2000

Table of Contents

List of Figure and Tables
Executive Summary
Introduction
Self-Employment over the Last Four Decades
Full- and Part-Time Self-Employment Rates
Full- and Part-Time Self-Employment Income
Number of Employees
Socio-Economic Characteristics
Self-Employment by Geographic Area
Self-Employment by Region and Country of Origin
Illegal Immigrants
What Explains the Myth of Immigrant Entrepreneurship?
Conclusion
End Notes and References
Other Recent Publications



List of Figures and Tables

Figure 1: Percentage of Natives and Immigrants Self-Employed, 1960-1997

Table 1: Self-Employment Rates and Average Incomes for Immigrants and Natives in 1997

Table 2: Number of Employees Working for Immigrant and Native Businesses in 1997

Table 3: Self-Employment for Immigrants and Natives by Age in 1997

Table 4: Self-Employment for Immigrants and Natives by Education in 1997

Table 5: Distribution of Self-Employed Immigrants and Natives Across Industries in 1997

Table 7: Self-Employment for Immigrants and Natives in Top Immigrant-Receiving Consolidated Metropolitan Areas (CSMA), 1997

Table 8: Self-Employment for Immigrants and Natives in Central Cities, Suburban, and Rural Areas, 1997

Table 9: Self-Employment, Age, and Education by Region of Origin and for Selected Countries, 1997



Executive Summary

One of the most common perceptions of immigrants is that of businesses owner: Stories of immigrant businesses revitalizing neighborhoods or playing a leading role in a particular industry have become a staple of immigration news coverage; advocates often argue for high levels of immigration on the grounds that immigrants infuse the country with an entrepreneurial spirit unmatched by natives; and Stephen Moore of the Cato Institute, one of the nation's leading immigration advocates, argues that immigration should be increased further because one of the distinguishing characteristics of immigrants is their "very high levels of entrepreneurship." Conservative commentator Joel Kotkin observes, "Today's immigrants be they Asian, European, or Latino are refueling our entrepreneurial economy." Unfortunately, generalizations of this kind often have been based on anecdotal evidence or an examination of only one immigrant group or immigrants in only one industry.

Drawing conclusions about overall levels of immigrant entrepreneurship from limited samples and unrepresentative populations is like trying to determine the level of criminality among immigrants by looking at the prison population in a high-immigration state like California. While immigrants make up a very large share of inmates in that state, it would be unfair to draw the conclusion that immigrants are disproportionately criminals. One would need to know what share of the total population immigrants account for in that state before making generalizations about immigration and crime. The same is true when examining entrepreneurship.

Unfortunately, most of the media coverage of immigrant entrepreneurship fails to place it into any kind of demographic context. In an effort to correct this situation, this reports looks at the self-employment patterns of all immigrants in order to determine the actual impact of immigration policy on the overall level of entrepreneurship in the United States. Using data collected by the Census Bureau, the report compares immigrant and native full- and part-time self-employment rates, self-employment income, the number of workers employed by immigrant and native businesses, and other characteristics. The findings indicate that while immigrants were once significantly more entrepreneurial than natives, this is no longer the case. Since 1980, immigrants and natives exhibit remarkably similar levels of entrepreneurship.

Findings

  • The non-farm self-employment rate of immigrants has fallen from 13.8 percent in 1960 to 11.3 percent in 1997. Over the same period, the self-employment rate for natives increased from 9.6 to 11.8 percent (see Figure 1 on page 8 ). As result, natives are now slightly more likely to be self-employed than immigrants, a reversal of the historic pattern. Natives are also slightly more likely to be self-employed on a part-time basis.
  • If self-employed farmers are included, the native advantage is even larger. In 1997, 12.3 percent of natives (including farmers) where self-employed, compared to only 11.4 percent of immigrants.
  • The presence of immigrants has no effect on the overall level of entrepreneurship in the United States. In 1997, 11.7 percent of all adults (including immigrants) were self-employed. Without immigrants, the rate would have been 11.8 percent.
  • The average annual income of self-employed immigrants is $20,710, somewhat higher than the average native self-employment income of $18,509. However, the majority of both immigrant and native entrepreneurs have very modest incomes, with more than half of both groups either losing money or earning less than $10,000 a year from their businesses.
  • There is no significant difference in the number of workers employed by immigrant and native entrepreneurs, with 86 percent of native- and 87 percent of immigrant- operated businesses employing fewer than 10 workers.
  • Even in the central cities of the nation's metropolitan areas immigrants are not more entrepreneurial than natives. The self-employment rate of natives and immigrants in central cities is exactly the same 10.3 percent.
  • There is almost no difference in the self-employment rate of immigrants and natives in the nation's major immigrant-receiving states and metropolitan areas.
  • The presence of immigrants as entrepreneurs or their availability as workers has no obvious effect on entrepreneurship activity in a metropolitan area. The total self-employment rate (native and immigrant) in the top immigrant-receiving cities is 11.4 percent. In contrast, the total self-employment rate in the rest of the country is 11.8 percent.
  • Immigrant entrepreneurs do not significantly affect the mix of businesses in the American economy. Based on the distribution of self-employed immigrants across industries, the types of businesses started by immigrants and natives are very similar.
  • While there is little difference between the entrepreneurship of natives and immigrants as a group, there are substantial differences between immigrants from different parts of the world. Immigrants from the Middle East, Europe, and East Asia have the highest self-employment rates and incomes, while immigrants from Mexico, Central America, and the Caribbean have the lowest.
  • Difference in education levels and duration of stay in the United states explain some difference among immigrant groups' level of self-employment. However, culture and other factors also play an important role in entrepreneurship.

Why Study Immigrant Entrepreneurship?

The entrance of over one million legal and illegal immigrants each year in the 1990s has wide ranging effects on the United States. In recent years there has been growing concern over high poverty rates and welfare use among immigrants, as well as their impact on schools, public coffers, and job competition with natives for low-wage jobs. What's more, because immigration has become the primary factor driving population growth in the United States, many worry that immigration worsens the problems of pollution, congestion, and sprawl. However, a number of authors have argued that high rates of entrepreneurship among immigrants offset, at least in part, the costs associated with immigration. If immigrants were significantly more entrepreneurial than natives, it certainly would be relevant to the immigration debate because it would mean that immigrants have a positive effect on the economy well beyond their numbers. By starting businesses at higher rates than natives or businesses that are very different from those operated by natives, immigrants could create new employment opportunities for native-born workers and more choices for consumers.

The results of this report, however, indicate that immigrants are not more entrepreneurial than natives. The presence of immigrants has no appreciable effect on the overall level of entrepreneurship in the United States. Instead, immigration increases the number of business owners creating jobs at about the same rate as it increases the number of people looking for jobs. The findings of the report also indicate that immigrants do not operate businesses much different from those operated by natives: The distribution of immigrant and native business across industries is very similar. There is also no indication that immigrants in the central cities of the nation's metropolitan areas are more entrepreneurial than natives the two groups have exactly the same self-employment rates. All the evidence examined in this report indicates that immigration is an unlikely vehicle for increasing entrepreneurship in the United States. Therefore, the debate over immigration instead should focus on other areas where immigrants actually do create real benefits and impose real costs on the United States. Entrepreneurship is simply not one of those areas.

Data and Methodology

Estimates of immigrant entrepreneurship in this paper are based on data from the last four Decennial Censuses as well as a combined sample of the March 1997 and 1998 Current Population Surveys (CPS) collected by the Census Bureau. All persons not born in the United States, one of its outlying territories, or of American parents living abroad are considered immigrants. All persons born in the United States, including the children of illegal aliens, are considered natives. While the Census Bureau refers to individuals born outside of the United States as "foreign-born", in this report foreign-born and immigrant are used synonymously. The March CPS is used because it contains an extra-large sample of Hispanics and is considered the best source of information collected on immigrants between the Censuses.

Both the Census and CPS ask respondents if they are self-employed. This question is used to determine self-employment rates for immigrants and natives. For the CPS, self-employment is based on whether the respondent was self-employed in the previous year of the survey. Annual self-employment income (revenue minus expenses) is also based on the previous year. Therefore, self-employment rates and incomes from the March 1997 and 1998 CPSs are for 1996 and 1997 respectively. Unless otherwise indicated, analysis in this study is confined only to employed persons 25 years of age and over who are not farmers.

What Explains the Myth of Immigrant Entrepreneurship?

If immigrants are not more entrepreneurial than natives, why does the stereotype continue to exist? It is certainly common for public perceptions to be incorrect about economic and demographic facts. For example, a number of surveys show that the public thinks teenage mothers make up the majority of the people on welfare, when in fact, administrative and other data clearly show that this is not the case. Another example of mistaken public perceptions is that most Americans, including minorities, overestimate by at least a factor of two the percentage African-Americans represent in U.S. population. We should therefore not be surprised that the perception of immigrant entrepreneurship also turns out to be incorrect. Only with a large, scientifically collected survey like the CPS or a national census is it possible to get an accurate economic or demographic picture of the nation.

While mistaken impressions may be common, it does not explain why the impression of immigrants as highly entrepreneurial exists in the first place. Three factors probably account for the stereotype: First, the fact that immigrants were once much more likely to be self-employed than natives may explain why the perception of immigrants as highly entrepreneurial exists. Many observers may simply be ascribing the traits of past immigrants to today's immigrants. Second, high levels of entrepreneurship among some immigrant groups may also account for the perception of immigrants as uniquely entrepreneurial. Elevated rates of entrepreneurship for Koreans and Middle Easterners, for example, may be falsely attributed to all immigrants. Third, policy makers, the public, and even reporters are more likely to come into contact with immigrant entrepreneurs than with immigrant workers. The immigrant restaurant owner who greets customers is much more likely to be remembered than are the immigrant cooks and dishwashers, whom the patron never sees. Most Americans have much more personal contact in their daily lives with self-employed immigrant street vendors or kiosk operators than with immigrant farm labors or construction workers. Since most people make generalizations based on their own experience, it is not surprising that they see immigrants as particularly entrepreneurial.

Conclusion

Like the negative stereotype of immigrants as predisposed toward crime, the positive stereotype of immigrants as super-entrepreneurs turns out to be incorrect. Both Census and CPS data indicate that a higher rate of entrepreneurship is not a distinguishing characteristic of immigrants. In terms of self-employment rate, income, and number of workers they employ, immigrants and natives are remarkably similar. As a result, immigration has no discernable effect on the overall level of entrepreneurship in the United States. Therefore, by itself, immigrant entrepreneurship cannot be used to justify or oppose current immigration policy. One must look elsewhere to make a case for or against immigration. There is no question that immigration has real effects on the United States, but increasing the level of entrepreneurship is not one of them. As immigration continues to be the subject of intense national debate, the focus should be on those areas where immigration creates real costs and benefits.


Introduction

A brief walk through an immigrant neighborhood in any of the nation's cities leaves an impression of intense entrepreneurial activity. Street vendors sell everything from produce to pajamas, while small shops and restaurants advertise in the community's native language. Stories of immigrant businesses revitalizing neighborhoods or playing a leading role in a particular industry have become a staple of news coverage on immigration, and many commentators use immigrant entrepreneurship to make the case for continued high levels of immigration.

Stephen Moore of the Cato Institute, one of the nation's leading immigration advocates, argues that "immigrants are highly entrepreneurial," and that immigration should be increased further because one of the distinguishing characteristics of immigrants is their, "very high levels of entrepreneurship" (Briggs and Moore, 1994, 108,122). "Today's immigrants be they Asian, European, or Latino are refueling our entrepreneurial economy," observes conservative commentator Joel Kotkin (Kotkin, 1991). California businessman and politician Ron Unz goes so far as to say that, "The overwhelming majority of California's immigrants are self-reliant and entrepreneurial..." (Unz 1994, 46). And Julian Simon, one of the country's strongest immigration advocates until his death in 1998, argued that one of the reasons immigration should be increased is that, "immigrants clearly have a higher propensity for self-employment than do natives." (Simon, 1989, 72). 1

Unfortunately, such observations are often based only on anecdotal evidence or studies of immigrants from one particular country, or only in one city or industry. Drawing conclusions about the overall level of immigrant entrepreneurship from limited samples and unrepresentative populations is not unlike trying to determine the level of criminality among immigrants as a group by looking only at San Quentin prison in California. While it is true that immigrants make up a very large share of inmates in that institution, it would be unfair to draw the conclusion that immigrants are disproportionately criminals; one would need to place incarceration figures from one particular prison into context before making generalizations about immigration and crime. The same is true when examining entrepreneurship. Unfortunately, most media coverage and many commentators fail to place immigrant entrepreneurship into any kind of demographic context.

In order to better inform the public discourse, this report examines immigrant entrepreneurship in a systemic fashion by using the most representative data available collected by the Census Bureau. The purpose of this report is to determine whether immigrants are significantly more entrepreneurial than natives. That is, are immigrants more likely to be self-employed than natives? Do their businesses generate more income than those of natives? And, how do immigrant and native businesses compare in terms of number of employees? In addition, this report compares immigrant and native entrepreneurs across localities and industries as well as differences between immigrants from various parts of the world. The findings indicate that while immigrants were once significantly more entrepreneurial than natives, this is no longer the case. Since 1980, immigrants and natives exhibit remarkably similar levels of entrepreneurship.

This report is unlike much of the recent work on immigrant entrepreneurship because it does not focus on differences between immigrant groups or factors hindering or facilitating immigrant self-employment (Razin and Light 1998; Fernandez and Kim 1998; Sander and Nee 1996; Yuengert 1995). Instead, it compares immigrants and natives in order to determine immigration's impact on the overall level of entrepreneurship in the United States.

Why Study Immigrant Entrepreneurship?

The entrance of more than one million legal and illegal immigrants each year has wide-ranging effects on the United States. In recent years, there has been growing concern over high poverty rates and welfare use among immigrants, as well as their impact on public schools and job competition with less-skilled natives (Camarota, 1999; Edmonston and Smith 1997; Borjas1999, Freeman and Katz 1997; Borjas and Hilton, 1996). What's more, because immigration has become the primary factor driving population growth in the United States, some have worried that immigration is worsening the problems of pollution, congestion, and sprawl (Beck, 1996; Bouvier and Grant, 1994). However, if immigrants are significantly more entrepreneurial than natives, then this might offset, at least in part, some of the costs associated with immigration. After studying immigrants in California's Silicon Valley, Annalee Saxenian, a professor at U.C. Berkeley, has observed that, "The [immigration] debate must be widened to reflect the new role of immigrant entrepreneurs as creators of jobs, wealth, and global linkages." (Quoted in Van Slambrouck 1999). A Business Week editorial in 1996 conceded that while there are costs to immigration, it "also boosts the country's entrepreneurial energy" (Oct 14, 1996, 142). Professor Ivan Light of UCLA points out that, "Immigrants have had a higher self-employment rate than natives for at least 100 years." High rates of entrepreneurship, he argues, mean that immigrants create more jobs than they take, and this should be taken into account by people who argue against immigration on the basis that it reduces opportunities for natives (Shaughnessy 1995). Saxenian, Light, and many others argue in effect that a full accounting of the costs and benefits of immigration needs to consider the contribution of immigrant entrepreneurs. If immigrants are more entrepreneurial than natives, it certainly suggests that immigrants have a significant positive effect on the economy well beyond their numbers because they are creating new employment opportunities for native workers and more choices for consumers.

On the other hand, if immigrants are less than or equal to natives in entrepreneurship, this would imply that immigration is not a vehicle for increasing the overall level of entrepreneurship in the United States. It would mean, for example, that immigration increases the number of business owners creating jobs at about the same rate as it increases the number of people looking for jobs.2 If this is the case, then the presence of immigrants has no discernable effect on the overall level of entrepreneurship in the United States. As a result, Saxenian, Light, Moore, and others are not correct and the debate over immigration should not take into account immigrant entrepreneurship, but instead, should focus on other areas where immigrants actually do create real benefits and impose real costs on the United States.

Data and Methodology

This report draws on data from the last four Decennial Censuses3 as well as a combined sample of the March 1997 and 1998 Current Population Surveys4 (CPS). The Censuses are used because they are virtually the only historical data available that identifies persons born outside of the United States referred to as "foreign-born" by the Census Bureau.5 (For the purposes of this report, foreign-born and immigrant are used synonymously.) The March CPS is used because it contains an extra-large sample of Hispanics and is considered the best source of information collected on immigrants between the Censuses. Both the Census and CPS ask respondents if they are self-employed. This question is used to determine self-employment rates for immigrants and natives6. Unless otherwise indicated, analysis in this study is confined only to employed persons 25 years of age and over. In order to avoid confusing the decline in family farms that has taken place over the last half century with other trends in self-employment, self-employed farmers are excluded from the tables in this analysis.


Self-Employment over the Last Four Decades

Declining Immigrant Self-Employment

Figure 1 compares the percentage of immigrants and natives who are self-employed full-time7 from 1960 to 1997. The figure indicates that while at one time immigrants were significantly more entrepreneurial than natives, this is no longer the case. In 1960, 13.8 percent of immigrants were self-employed compared to only 9.6 percent of natives a 4.2 percentage point immigrant advantage. By 1970, the immigrant advantage in self-employment had declined to 2.8 percentage points. Since 1980 the self-employed rates of immigrants and natives have been very similar, with immigrants having only slightly higher self-employment rates in both 1980 and 1990. By 1997, even this very small advantage had entirely disappeared. In fact, natives are now slightly more likely to be self-employed than immigrants, a reversal of what had been true a few decades earlier. Figure 1 indicates that although once true, the conventional wisdom that immigrants are significantly more entrepreneurial than native-born Americans is not correct. At the very least, it is clear that self-employment is not a distinguishing characteristic of immigrants, nor has it been for the past two decades.

What Explains the Decline in Immigrant Entrepreneurship?

Three factors probably account for most of the decline in immigrant entrepreneurship found in Figure 1. First, in recent years a good deal of research has concluded that the average education level of immigrants has fallen relative to that of natives and the needs of the U.S. economy (Borjas 1999; Edmonston and Smith 1997). As will be seen in Table 4, education is positively correlated with self-employment. Therefore, falling relative levels of education are likely to account for some of the decline in immigrant self-employment.

Second, substantial changes in immigration law made in the 1960s, along with other factors, have resulted in a significant shift in the immigrant sending-countries. Prior to the 1960s, immigrants to the United States came overwhelming from Europe. By the 1970s, Latin American and Asian countries had come to dominate the immigrant flow. Because significant differences exist in entrepreneurship by region and country of origin (see Table 9), the changing composition of the immigrant population has likely played a role in the decline of immigrant self-employment.

Third, immigration has been increasing steadily since the 1960s. As result, a larger share of immigrants were new arrivals in 1997 than was the case in 1960. (Since 1980, however, there hass been almost no change in the proportion of immigrants who are new arrivals.) Because newly arrived immigrants are less likely to be self-employed than more established immigrants (see Table 1), the recency of the immigrant population must account for some of the decline in self-employment. All three factors taken together probably explain the decline in immigrant self-employment found in Figure 1. But whatever the reasons for the drop in immigrant entrepreneurship, it is clear that they are no longer more likely to be self-employed than natives.


Full- and Part-Time Self-Employment Rates

Full-Time Self-Employment

Table 1 (below) provides more detailed information on the self-employment patterns of immigrants and natives in 1998. The top portion of the table reports self-employment information for all immigrants and natives, while the bottom part reports it for immigrants by year of entry in 1997. The first column shows the average age for immigrants and natives. The second column reports the percentage of immigrants and natives who are self-employed full-time.8 As we have already seen, the non-farm native self-employment rate of 11.8 in 1997 was slightly higher than the 11.3 percent for immigrants.9 If self-employed farmers are included, the native advantage in self-employment increases. In 1997, the total self-employment rate of natives (including farmers) was 12.3 percent, almost one percentage point higher than the 11.4 percent for immigrants when farmers are included. Since farmers are overwhelming native-born, this result is certainly not surprising.

While natives do seem to be slightly more likely to be entrepreneurs than immigrants, even when self-employed farmers are included the native advantage still is small.10 Instead, what is striking about the full-time self-employment rates is the fact that the two groups are so similar and have been for almost 20 years. This similarity means that the presence of immigrants has no effect on the overall level of entrepreneurship in the United States. In 1997, the total self-employment rate (including immigrants) in the United States was 11.7 percent. If immigrants are excluded, the rate would have been 11.8. Put another way, immigrants make up 11.8 percent of the workforce11 and they comprise 11.4 percent of the nation's entrepreneurs. Thus, immigration has no discernable impact on the overall level of entrepreneurship in the United States.


Part-Time Self-Employment

Some entrepreneurs continue to work at their regular jobs in addition to having their own businesses on the side. This is especially likely to be the case when they are trying to get a new business started. The third column in Table 1 shows the percentage of individuals who report having some self-employment income, but are not self-employed at their primary job. As is the case with full-time self-employment, natives are somewhat more likely than immigrants to be part-time entrepreneurs 2.3 percent compared to 1.4 percent of immigrants. While both groups have low part-time self-employment rates, the slightly higher rate for natives makes it clear that part-time self-employment is not a distinguishing characteristic of immigrants. Combining the full- and part-time self-employment rates of immigrants and natives indicates that 14.1 percent of natives compared to 12.7 percent of immigrants are entrepreneurs. Although the 1.4 percentage points separating the combined full and part-time self-employment rates of immigrants and with those of natives is still small, it is large enough to be statistically significant.12 However, even though the difference is statistically significant, it would be a mistake to characterize this difference as large. What is important about the self-employment rates in Table 1 is not their statistical significance, but instead the fact that like many stereotypes, the perception that immigrants are uniquely entrepreneurial turns out to be incorrect. If anything, natives are slightly more entrepreneurial than immigrants.

Self-Employment by Year of Entry

The lower portion of Table 1 presents the self-employment rate of immigrants based on when they entered the country. Examining immigrants by entering cohort is important because it is one way to determine how immigrants perform over time. The table shows that the longer immigrants are in the country, the more likely they are to be self-employed. In 1998, 17 percent of immigrants who entered prior to 1970 were self-employed on a full-time basis, 5.2 percentage points higher than that of all natives. The high self-employment rate of pre-1970 immigrants is not surprising because, as we will see in Table 3, age is positively correlated with self-employment. Because the average age of pre-1970 immigrants is 51 years, nine years older than the average age for natives, the self-employment rate of pre-1970 immigrants should be correspondingly higher. Natives in their fifties have very similar self-employment rates. The high self-employment rate of pre-1970 immigrants may also reflect the fact that most of these immigrants were admitted under the system that existed prior to 1965, which tended to produce a more educated flow of immigrants.

Table 1 also illustrates that the self-employment rate for immigrants who arrived in 1970 or after is 10.1 1.7 percentage points lower than that of natives. Looking at immigrants who arrived in each of the last three decades since 1970 shows rising rates of self-employment over time. The self-employment rate of 6.1 percent for 1990s immigrants is the lowest of any decade. Like the high self-employment rate for pre-1970 immigrants, the low self-employment rate for 1990s immigrants is also not surprising. 1990s immigrants are on average 36 years old, five years younger than the average native. Moreover, because 1990s immigrants have been in the country for only a few years, they are less familiar with the economy, language, and culture of their new home.

The self-employment rate for 1980s immigrants of 10.8 percent and the 12.7 percent for 1970s immigrants indicates that, as immigrants become more familiar with their new country, they have self-employment rates that are very similar to those of natives. Moreover, these immigrants are about the same age as natives 1970s immigrants are one year older on average and 1980s immigrants are three years younger than natives. Looking at immigrants who arrived in the 1970s and the 1980s indicates that, after a few years, immigrants are about as likely as natives to be entrepreneurs, but their rate of self-employment does not exceed that of natives.

Only when immigrants are much older than natives, as are pre-1970s immigrants, are their self-employment rates much higher than those of natives. But even then, as we will see, their self-employment rates do not exceed those of natives who are the same age. Table 1 also illustrates that the same basic pattern of rising self-employment rates exists when we look at part-time self-employment. However, unlike full-time self-employment, the part-time self-employment rate of immigrants never reaches the 2.3 percent for natives, even when immigrants have been in the country for many years. Of immigrants who arrived prior to 1970, 1.7 percent are self-employed part-time; for 1970s immigrants the figure is 1.4 percent; for 1980s immigrants 1.3 percent are self-employed part-time; and 1.2 percent of the most recent arrivals are part-time entrepreneurs. While natives do have higher part-time self-employment rates than immigrants, regardless of year of entry, part-time self-employment is rare for both groups. Few workers, immigrant or native, seem to be able to hold a job while also operating their own business on the side.


Full- and Part-Time Self-Employment Income

Unfortunately, there is no way to measure directly the total revenue of immigrant and native businesses. The CPS does, however, ask respondents how much self-employment income (revenue minus expenses) they earned in the previous year. Thus, it is possible to determine how much money immigrant and native entrepreneurs are generating for themselves. Income is important because it is one way to measure the size and success of a business.

Full-Time Self-Employment Income

The fifth column in Table 1 shows the average full-time self-employment income of immigrants and natives. While natives are slightly more likely to be self-employed, immigrants who are self-employed have slightly higher incomes. In 1997, the annual income of self-employed natives was $18,447, compared to $20,710 for immigrants. The self-employment income figures suggest that immigrant entrepreneurs are slightly more successful than native entrepreneurs, at least in terms of generating income for themselves. However, this difference is not large enough to be statistically significant.13 Moreover, self-employment is certainly no guarantee of success for either group. Forty-two percent of natives and 40 percent of immigrant entrepreneurs either lose money or only break even. An additional 18 percent of self-employed natives and 16 percent of self-employed immigrants reported that their self-employment income was less than $10,000 a year. Clearly, self-employment provides only a modest income for natives and immigrants alike. It should be noted, however, that it is common for self-employed persons to deduct as many expenses as possible in order to reduce their tax liability. This may explain the seemingly low self-employment income for both groups.

Part-Time Self-Employment Income

Part-time self-employment income is reported in the sixth column of Table 1.14 As is the case with full-time income figures, immigrants have somewhat higher part-time self-employment income. In 1998, the average part-time self-employment income for natives was $6,718, compared to $8,423 for immigrants. This is not a statically significant difference. Perhaps more important than statistical significance, the average part-time self-employment income figures show that both groups make less than $8,500 annually. It is clear that being self-employed on a part-time basis generates very modest incomes for the relatively few workers (immigrant and native) who are able to operate a business in addition to holding down another job.

Self-Employment Income by Year of Entry

The lower portion of Table 1 shows the average self-employment income for immigrants based on when they entered the country.15 The year of entry data indicate that while the income of immigrant entrepreneurs grows over time, the increase is not dramatic. The income of self-employed immigrants who arrived in the 1990s ($18,627) is equal to 90 percent of the average self-employment income for immigrants overall. Thus immigrants are more likely to become entrepreneurs over time, but the income of those who are self-employed does not change very much with duration of stay in the United States.


Number of Employees

In addition to income, the CPS also asks respondents how many employees work for their employer at all locations. For self-employed individuals, this question should provide a rough idea of the size of immigrant and native businesses. Table 2 (below) reports the number of employees working in native and immigrant businesses in 1997. The table shows that businesses run by both groups tend to be small, with roughly 87 percent of immigrant and 86 percent of native entrepreneurs having fewer than 10 workers. Overall, the two groups are almost identical in terms of the number of employees. This is also true when we examine the year of entry data located at the bottom of Table 2.

The year of entry data also show that immigrant businesses do not seem to grow significantly in size over time. For example, 87 percent of business operated by 1990s immigrants had fewer than 10 employees. In comparison, 86.9 percent of businesses operated by pre-1970 immigrants and 85.7 percent of businesses operated by 1970s immigrants have fewer than 10 employees.

It should be pointed out that the CPS is not designed to measure differences in the number of employees working for small business. The lowest value recorded by the survey is nine or fewer employees. However, if businesses operated by immigrants created significantly more jobs than those operated by natives, some differences in the number of employees should still show up in this data. To the extent that there is any difference in the number of employees between immigrant and native businesses, the results in Table 2 very slightly favor native over immigrant businesses. Overall, it seems that, like those of natives, the vast majority of immigrant businesses are small and remain so even when immigrants have been in the country for many years. Like the other measures of entrepreneurship examined so far, what stands out when we compare immigrant and native businesses in terms of employees is the similarities between the two groups, not the differences.



Socio-Economic Characteristics
The comparisons made in this study so far have been for all employed persons 25 and older, with self-employed farmers excluded. This section of the report examines differences based on various socio-economic characteristics.

Self-Employment by Age and Education

Table 3 (below) reports self-employment rates by age for persons 25 and older. The table shows that as they age, both immigrants and natives are increasingly likely to be self-employed. The difference in self-employment rates for the two groups is one percentage point or less in every age group with the exception of persons 55 and over.

But even in this category, the 2.8 percentage-point advantage enjoyed by natives is not very large.

Table 4 (page 24) reports self-employment rates by education. The table shows that the more education a person has, the more likely he or she is to be self-employed. While there is more variation in self-employment rates between immigrants and natives by education than by age, in most educational categories immigrants and natives have very similar self-employment rates. Only among high school dropouts do natives seem to be somewhat more likely to be self-employed, and only among college graduates do immigrants have somewhat higher levels of self-employment. In general, Tables 3 and 4 indicate that there is not much difference between the two groups by education or age.

Self-Employment by Industry

All the evidence examined so far indicates that immigration does not have a significant impact on the overall level of entrepreneurship in the United States. Perhaps, however, immigrants benefit the American economy not by having higher rates of entrepreneurship or by the size of the businesses they create, but instead by the kind of businesses they operate. If immigrants start businesses very different from those started by natives, this might create significant benefits for natives because it could mean that immigrant businesses offer goods and services that might not otherwise be available. This in turn could create more choices for consumers and new opportunities for workers and native-owned businesses.

Table 5 (page 24) presents the percentage of native and immigrant entrepreneurs in each industry. The table reads as follows: In 1997, 6.2 percent of native entrepreneurs worked in manufacturing, compared to 5.4 percent of immigrant entrepreneurs. The table shows that immigrant and native entrepreneurs have a similar distribution across industries. The main exception is that native entrepreneurs are more likely to be in the construction business, while self-employed immigrants are more heavily concentrated in retail sales. It seems unlikely, however, that this difference is enough to significantly change the mix of businesses in the U.S. economy. The higher rate of self-employment in retail sales for immigrants increases the overall number of self-employed people in that industry in the U.S. economy by only 7.7 percent.16 This is not likely to make a significant difference in the overall economy, especially because a very large share of self-employed persons in retail sales are street vendors with particularly modest operations.

Immigrant businesses may be different from those of natives, but the data presented here are too aggregated to discern these differences. Given the sample size of the CPS, it is not possible to further divide self-employed immigrants into more detailed industrial classifications and still obtain reasonable estimates. With a larger sample and greater divisions by industry, significant differences might emerge. Based on this evidence, however, it seems unlikely that immigrants create a significant benefit to the economy by fundamentally changing the mix of businesses operating in the United States. They operate businesses very similar to their native-born counterparts.