In an interview with MSNBC’s “Morning Joe” three days after President Trump’s executive order restricting entry to foreign nationals from seven largely Muslim countries, White House Press Secretary Sean Spicer called the ban “a small price to pay” to insure the security of the country. Mr. Spicer’s comment and, indeed, the ban itself begs for a fact-based discussion on the role of immigration in the United States economy, particularly as this Executive Order is just the first steps in a “larger immigration effort,” according to the White House spokesman.
With student and H-1B work visa programs, among others, squarely in the sights of reformers, I turned to multiple, nonpartisan research organizations to examine the impacts of entrepreneurship, job growth, and immigration on the economy. The findings suggest that, contrary to Mr. Spicer’s assertion, the price may be much higher than the administration is willing to admit.
[Note: This article strives to create a dialogue about immigration and the economy– it is not limited to, or a focus on, the currently proposed executive order temporary ban– that is merely the catalyst.]
Net Job Growth
To place the impact of immigration in context, it’s important to first look at the source of new job growth. In its 2015 update to the report The Importance of Young Firms For Economic Growth, the Kauffman Foundation found that the majority of net new job creation and twenty percent of gross job creation comes from companies five years and younger. Firms less than one year old created an average of 1.5 million jobs per year over the past thirty years. Older, established firms, often shed jobs at a rate higher than they create them. It stands to reason, then, that we need to continuously create new companies in order to keep pace with the needs of our labor force.
Accelerating Industry Disruption Cycles
Research by the Innosight Consulting Group in 2012 found that the lifespan of companies listed on the S&P 500 was dramatically shrinking. In 1958, a company held its place on the index for an average of 61 years. By 1980, the average time on index dropped to 25 years, and then to 18 years by 2012, as new and innovative companies disrupted and replaced the index stalwarts. If this rate of disruption continues, as researchers believe it will, 75% of the companies listed on the S&P 500 in 2027 will be entirely new firms. In order to maintain a dominant role in the global economy, we need to continuously create new firms in order to keep pace with our accelerating industry disruption cycles.
Immigration and Entrepreneurship
With that as background, then, it is important to understand the relationship between immigrants and entrepreneurship in the United States. Research by the Kauffman Foundation, the Small Business administration, and others finds that immigrants start businesses at a much higher rate than native-born Americans—even in periods of economic recession. A 2012 Kauffman Foundation study, for example, found that immigrants started businesses at about twice the rate of native born Americans. Notably, about 25 percent of engineering and technology companies founded between 2006 and 2012 had at least one founder who was born abroad, and in Silicon Valley that share rose to 43.9 percent.
In the period 1996-2011, there was a fifty percent increase in the number of businesses started by immigrants and a ten percent decline in businesses started by native-born Americans. According to the National Foundation for American Policy, fifty-one percent of the billion dollar startups in 2016 had at least one foreign born founder. This trend of immigrant driven entrepreneurship is now stretching over more than a decade, many of our technology driven startups, fueling this industrial revolution, are built by individuals who were not born in this country.
Moreover, according to a 2012 report by the Partnership for a New American Economy U.S. immigrant-owned businesses are 60 percent more likely to export goods than are native-owned companies, and are more than 2.5 times as likely to rely on exports for a large part of their sales Exports are vital to our nation, responsible for about half of the country’s economic growth in recent years.
A 2016 article in Harvard Business Review speculates that immigrants are more entrepreneurial because their extensive cross-cultural exposure makes them better able to evaluate business ideas across domains and port new offerings to new context, skills that enable them to more readily identify promising business opportunities. We need immigrants with diversity of thought and cultural experiences to assist in the creative expansion of this next industrial revolution.
Potential Brain Drain
We must also consider the impact of the immigration order on our collective intellectual capability. The United States hosts the highest percentage – 19% – of international student population, according to the Migration Policy Institute, citing 2013 data, last year data was available. These students don’t just study and leave; they often become key contributors to our academic institutions. Notes Harvard President Drew Faust: “Nearly half of the deans of Harvard’s schools are immigrants – from India, China, Northern Ireland, Jamaica, and Iran.” Lizbet Boroughs, associate vice president for federal relations for the Association of American Universities, reported in the Washington Post recently that the order could ultimately hurt the country’s competitiveness if the best and brightest research scholars no longer want to study or work in the United States.
This is a very real concern when you consider the role of students in the creation of new companies. The National Foundation for American Policy (NFAP) found that international students account for 70 percent of the full-time graduate students (both Master’s and Ph.D.’s) in electrical engineering, 63 percent of computer science, and more than half the full time graduate students in industrial engineering, economics, chemical engineering, materials engineering and mechanical engineering. When you consider the next industrial revolution—these are the key disciplines fueling it. We cannot cut ourselves off from the best and brightest in the world—our national economic competitiveness depends on it.
Not long ago Elon Musk — founder of Tesla, Space X, Solar City, and the precursor to Paypal — was a South African-born Canadian foreign national studying for his PhD at Stanford University. Russian foreign national Sergey Brin and American-born Larry Page met at Stanford and turned their academic research into the foundation for Google. Steve Jobs, son of a Syrian immigrant who under President Trump’s order would not be let in the country today, founded Apple, #9 on the list of the world’s largest companies with 2016 revenue of $234 billion and a market capitalization of over $550 billion. Where on our list of banned countries sits the next founder of an Apple, Google, or Tesla?
Myths and The Misunderstood
According to William C. Banks, director of the Institute for National Security and Counterterrorism at Syracuse University College of Law, “Since 9/11, no one has been killed in this country in a terrorist attack by anyone who emigrated from any of the seven countries [listed on the executive order].”
The Niskanen Center study on immigration policy (1998-2012) found that as immigration increases, violent crime decreases. Further, the American Immigration Council found that among men 18-39, the bulk of the prison population, foreign-born nationals (0.7 %) are incarcerated at a lower rate than native-born Americans (3.5%).
The myth that undocumented workers take from the system appears to be unsubstantiated. According to Steven Goss, Chief Actuary at the Social Security Administration, 1.8 million undocumented workers using purchased or false social security numbers paid $13 billion in taxes for which they received less than $1 billion in services in 2010, the last year data was available. These numbers account for a $12 billion annual net cash flow to the US treasury.
Not only do immigrant workers contribute to the labor force notably in the service and construction sectors, they contribute to our tax base at a higher rate than our top earners. The Institute on Taxation & Economic Policy’s study found that, “undocumented immigrants’ nationwide average effective tax rate is an estimated 8 percent. . . The top 1 percent of taxpayers pay an average nationwide effective tax rate of just 5.4 percent.”
In short, whether through their payroll taxes, entrepreneurship, or intellectual property, immigrants contribute to the United States economy far more than they take from it. Further, an immigration ban denies our country tremendous opportunity and potential.
We have been on the wrong side of history before. American University history professor Richard Breitman noted in a 2007 story in the Washington Post: “Otto Frank’s efforts to get his family to the United States ran afoul of restrictive American immigration policies designed to protect national security and guard against an influx of foreigners during time of war. [Were it not for that policy,] Anne Frank could be a 77-year-old woman living in Boston today – a writer.”
We must learn from our past mistakes and cease on current opportunity, or we risk changing the course of our history and our economy—for the worse. Put simply, we cannot afford this.
Update: Since I wrote this article a few days ago, over 100,000 people have viewed it. A large percentage of the comments focus on the temporary ban rather than immigration and the economy. I amend this article only because it seems there is some confusion, so I offer a few key points:
- This article was intended to offer facts for a discussion and consideration about immigration and the potential impact on the economy, not the proposed ban or a political discourse on the current administration.
- The 90 day ban from 7 countries was widely reported, the elimination of 60,000 green cards was not. (Source Reuters)
- Four days ago (February 9th) Senators Tom Cotton, Arkansas (R), and David Perdue, Georgia (R) proposed legislation that would reduce immigration by reducing green cards. “The net effect is to cut American immigration in half,” Cotton told Fox News’ “Fox & Friends.” Hence the intent to have a discussion about immigration beyond the immediate ban. (Sources: Fox News and CNN)
- In the more near term, the temporary ban is having potentially devastating impacts on scientific research at multiple institutions in the US. (Sources: The Atlantic, Nature.com, and The New York Times)
- The correlation of immigration and entrepreneurship appears to be not limited to the US as, according to the Financial Times, immigrants to the UK set up one in seven new companies creating 14% of jobs. According to the Economist, 44% of new companies established in Germany were registered by an individual with a foreign passport.
The US remains the leader in entrepreneurial activity (Source: Chart from Economist)
About Heather McGowan
Heather McGowan works at the intersection of the Future of Work and the Future of Learning, an emerging field that integrates design strategy, management consulting, and education. In higher education, McGowan advises presidents to develop both expertise and learning agility to prepare graduates for jobs that do not yet exist. McGowan also works with corporations to prepare for the rapidly changing future of work. More info at: www.heathermcgowan.net and www.futureislearning.com. Heather is the coauthor and coeditor of the book Disrupt Together: How Teams Consistently Innovate and she is currently collaborating with Chris Shipley on a book on the Future of Work. Information on that book can be found here.
Heather’s LinkedIn network is open. She welcomes conversations about the future of work, future of learning, or creating learning networks. Contact [email protected] for speaking engagements or consulting requests.
Thank you to Chris Shipley for vital contributions to this post.