Immigrants Rule When It Comes to Setting Up Shop

African-American startup growth highest among native-born Americans

By Christine Ferrer, New America Media

SAN FRANCISCO – July 23, 2006 – An annual survey of entrepreneur start-ups shows that while among native-born Americans, African Americans are starting up businesses at a fastest clip than others, overall it’s mostly immigrants setting up shop.

New immigrant, African American entrepreneur start-ups grow, while overall national entrepreneurship activity continues to decline slightly each year, according to a national assessment.

Funded by the Ewing Marion Kauffman Foundation, the assessment found that immigrants far outpaced native-born Americans in entrepreneurial activity last year, but this is nothing new.

“Immigrants in the past have had higher rates of entrepreneurship than native-born,” said Robert W. Fairlie, of the University of California, Santa Cruz, who developed the Kauffman Index.

A few theories have arisen as to why immigrants start more businesses than native-born, said Fairlie. For one, immigrants are self-selected to be entrepreneurial.

“They chose to make a major move often for economic reasons, and thus differ from the native-born and residents of their home countries,” said Fairlie.

Another explanation is that they have access to inexpensive and trusted labor in more recent immigrants. Some of these immigrants may even be highly educated but their education qualifications acquired in countries of origin are not recognized in the United States.

The rate of entrepreneurial activity for immigrants dropped from 2004 to 2005, but immigrants continued to start businesses at greater rates than native-born individuals. Compared to 0.28 percent of native-born Americans, 0.35 percent of immigrants created new businesses per month, according to the Kauffman Index. This represented approximately 350 out of 100,000 immigrants who started a business per month compared to 280 out of the 100,000 native-born Americans.

“Small business owners create a lot of jobs and innovative ideas…many people argue that entrepreneurship is important for economic advancement, employment, and political power, ” said Fairlie. African Americans experienced the only increase in rates of entrepreneurial activity among major ethnic and racial groups. The Kauffman index findings show that the rate of African Americans starting businesses increased an estimated 40,200 starting new businesses per month in 2004 to 46,700 in 2005.

However, although entrepreneurial activity remained highest among Latinos compared to other ethnic groups, Latinos, Asians, and the white, non-Latino rate of entrepreneurial activity each dropped 0.02- 0.03 percent last year.

Several years ago, Fairlie found that restaurants, retail shops and services to be popular immigrant businesses. “(They are popular) probably, because they require less startup capital overall and less U.S. education…non-professionals,” said Fairlie.

Regions experiencing the highest rates of entrepreneurial activity tend to be concentrated among the Mountain and Pacific states, while lower rates are concentrated among the Middle Southern and Midwestern states. The average highest activity rates in Mountain and Pacific states are three times higher than the five lowest states.

The Kauffman Index findings also show declines in the number of people creating new businesses each month and in male entrepreneurial activity; women remaining at a stable rate; and the graying of entrepreneurship, as older individuals (55-64) increasingly engaged in new business start-ups.

Entrepreneurship in the last decade has been relatively steady said Fairlie. However, the report for 1996-2005 reveals some changes.

Entrepreneurial activity has been on a downward slide since 2003 but is still above levels of the boom levels of the late 1990s.

While the 2005 rate of entrepreneurial activity declined slightly from 2004, the rate of business creation remained steady.

“The United States continues to be a very entrepreneurial nation,” said Carl Schramm, president and chief executive officer of the Ewing Marion Kauffman Foundation. “The large portion of entrepreneurial firms and the significant number of jobs created by smaller, newer and growing firms in America are a strong indication that the entrepreneurial sector, with its flexibility and capacity to adapt quickly, is poised to become an even more important factor in our nation’s economic growth.”

The data are derived from the monthly Current Population Survey (CPS), a national population survey conducted by the U.S. Bureau of the Census and the Bureau of Labor Statistics. The Kauffman Index of Entrepreneurial Activity, which is defined as the percent of the adult United States population of non-business owners who start a business as their main job each month, is conducted annually.