One Cost of Cutting Back on Less-Skilled Immigration: Potential Business Creation

There are few aspects of immigrants and their contributions to the U.S. economy that get more attention than their high levels of entrepreneurship. As our past research has noted, immigrants are more than twice as likely as the U.S.-born population to found their own businesses. This phenomenon has been vital to our economy in recent years, particularly as it has recovered from the Great Recession. As recently as 2010, roughly one in 10 Americans employed by a private company worked at an immigrant-owned firm.

In recent days, the introduction of a new immigration bill by Sen. Tom Cotton and David Perdue has made exploring the topic of immigrant entrepreneurship of particular interest. The bill, which has White House support, proposes cutting the number of immigrants granted permanent residency in the country in half within a decade. This is achieved largely by substantially decreasing the number of visas available to immigrants for family reunification purposes. The bill also creates a merit-based immigration program that would prioritize immigrants with higher levels of education, English proficiency, and well-compensated job offers when deciding who can stay long term in the United States.

But foreign-born entrepreneurs are hardly a monolithic group. While journalists and pundits love to talk about the Elon Musks and the Sergey Brins of the world—the high-skilled immigrant entrepreneurs driving innovation in Silicon Valley—foreign-born entrepreneurs with considerably less education play an important role in our economy as well. Past studies have indicated, for instance, that immigrants own more than one out of every four Main Street businesses in the country, including more than half of all grocery stores and more than a third of all restaurants. Although some of these businesses are likely owned by immigrants with college degrees, many are also the product of immigrants who came to the country with only the thinnest of resumes but the biggest of dreams.

To get a sense of how less-skilled immigrants contribute to the economy as business owners—and what a bill like Sen. Cotton’s that discourages them from coming might cost us—we decided to take a look at the most recent data on the entrepreneurship among relatively lower-skilled immigrants. To do this we examined 2015 American Community Survey data on foreign-born entrepreneurs with less than a bachelor’s degree. In 2015, more than 2.1 million such entrepreneurs lived in the United States. This included almost 445,000 entrepreneurs with businesses in construction. More than 100,000 were in either the landscaping or building services industry, a broad category that includes everything from extermination to carpet cleaning businesses. (See Figure 1.)

One thing that is notable about the figures are how the entrepreneurship rate of this population—the immigrants we would in many ways expect to arrive with the fewest resources and support—compares to other demographic groups. In 2015, less-skilled immigrants had far higher entrepreneurship rates than the U.S.-born population: Just 8.9 percent of U.S.-born workers that year were self-employed entrepreneurs. Less-skilled immigrants also had higher rates of business starts than their more educated foreign-born peers, only 10.6 percent of whom were entrepreneurs that year. (Figure 2.)

These foreign-born entrepreneurs also achieved meaningful success. In 2015, they brought in $43.0 billion in business income. This amount represented almost one out of every nine dollars of business income brought in by the self-employed population that year.

Sergio Bermudez is one example of an immigrant who has achieved great success as an entrepreneur despite arriving in the United States without much of a formal education. Sergio and his five siblings immigrated from the Mexican state of Sonora in the late 1980s and early 1990s. None had more than a high school education. But that didn’t slow them down. The Bermudez brothers quickly took up jobs in a wide array of construction fields in Arizona—including concrete pouring and steel working. Looking at some cousins who owned a meat market in Phoenix, however, they dreamed of having their own store. By 1998, they’d sold off family cars and borrowed money from family members to buy a small, 3,000-square foot space in Albuquerque, New Mexico. They did the renovations themselves and bought used equipment on monthly installments. “It was hard,” Sergio says, “But we were used to an environment where if you don’t work hard, you don’t eat.”