Promoting Entrepreneurship as a Way to Grow the Economy

Community and Economic Development – Blog by UNC School of Government

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Promoting Entrepreneurship as a Way to Grow the Economy

By Jonathan Morgan

Published September 4, 2012

As the U.S. economy struggles to build and sustain momentum in the aftermath of the Great Recession, one strategy that warrants greater attention by policymakers is entrepreneurship development.  As discussed in a previous post, there is some debate about the extent to which new, small firms drive job creation relative to existing, larger companies.  There is much evidence to suggest that small firms, particularly ones in growth-oriented sectors, can create lots of jobs.  However, the benefits and contributions of small businesses to the economy extend beyond job creation.  For example, self-employment ventures typically do not produce large numbers of jobs, but they enable individuals to provide a valued good or service, earn a living, pay taxes, and meaningfully participate in the economy.

A previous post highlights what some U.S. cities are doing to promote entrepreneurial development.   One strategy being used by New York City is to target and address some of the challenges that immigrant entrepreneurs face in starting and growing a business.  A recent report commissioned by the Partnership for a New American Economy suggests that a focus on immigrant entrepreneurs could yield a significant payoff in terms of boosting the economy.  The report documents the sizeable impact on the U.S. economy that immigrant-owned businesses generate.  This economic impact has increased over time much more rapidly than that of firms owned by native-born individuals.  For example, during the last decade the income of immigrant-owned firms increased by more than 60 percent compared to only 14 percent for native-owned firms.  Other key findings from the report include the following:

• Immigrants are much more likely to start a new business than the native born.  The immigrant business start up rate in 2011 was 550 firms per 100,000 people versus 270 per 100,000 for the native born population.
• The business start up rate among immigrants has increased over time (by 50 percent between 1996 and 2011), while the business start up rate for the native born declined over the same period (by 10 percent).
• Immigrants account for a disproportionate share of new businesses in the U.S.  In 2011, immigrants started 28 percent of all new U.S. firms while comprising less than 13 percent of the population.
• Immigrant owned start-ups are well represented in sectors of the U.S. economy that are poised to grow.  
  

These numbers point to a tremendous opportunity for tapping into the entrepreneurial propensity of immigrants as a way to grow the U.S. economy.  We need to gain a better understanding of what factors motivate immigrants to start businesses.  The numbers also show a native born population in the U.S. that is lagging with respect to business start-up activity.  A comprehensive approach to entrepreneurship development would seek reverse this trend in an effort to increase new business formation rates among immigrants and the native born alike.