In America, Immigrants Really Do Get the Job Done
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The Muslim ban. The Wall. Children separated from their parents at the Mexican border. The past two years have seen an aggressive push by the Trump administration against both legal and illegal immigration. But it’s not just the United States seeing a backlash, says Harvard Business School Professor William R. Kerr.
“Nationalistic policies have gained strength all around the world,” Kerr says, pointing to Brexit in the UK and strains caused by the refugee crisis in Europe as indicators of anti-immigrant sentiment worldwide. “It’s very worrisome in the implications it could have for policy choices.”
Kerr, the Dimitri V. D’Arbeloff–MBA Class of 1955 Professor of Business Administration, has researched the economic effects of global migration of workers for more than a decade, sometimes partnering with his wife, Sari Pekkala Kerr, an economist and senior research scientist at Wellesley College, herself an immigrant from Finland.
“IMMIGRANTS AS A GROUP CAN HAVE A DYNAMIC EFFECT ON AN ECONOMY”
Kerr concludes that countries shutting the door on legal immigration are following the wrong approach. Far from being a drain on an economy, immigrants are actually an engine that helps drive innovation and growth—and could even become more vital to global competitiveness in the future.
“The debate is red-hot right now, but in the background, the workforces are rapidly aging in most advanced countries, and public debt levels are high,” he says. “So what’s the national strategy toward a healthy economy and future gains? There are several levers such as investing heavily in robotics and labor-augmenting machinery, but immigration can also be a powerful way for countries to continue economic development and growth.”
Highly skilled immigrants are key to prosperity
That influx is especially important when looking at higher-skilled workers, says Kerr, whose new book, The Gift of Global Talent: How Migration Shapes Business, Economy & Society, will be released by Stanford Business Books in October. “Today’s knowledge economy dictates that your ability to attract, develop, and integrate smart minds governs how prosperous you will be.”
Studies on whether immigrants to the United States take jobs away from Americans or constitute a drain on social welfare are mixed, says Kerr, with some research showing a net loss and others showing a net gain of jobs. “Even those economists who are more skeptical of immigration suggest the impacts are modest.” On the other hand, the benefits that immigrants provide when it comes to innovation are impressive, he adds.
In his recent working paper with Pekkala Kerr, for example, the researchers combined several databases that survey business owners across the United States. They found that even though foreign-born people make up about 13 percent of the US population, immigrant entrepreneurs create some 25 percent of new companies, and that number continues to rise. In some states, that percentage is even higher, with immigrant “gateways” such as New York and California seeing more than 40 percent of new businesses led by immigrants.
The study also found that immigrant-led companies start smaller but grow at a faster rate and are more likely to survive long term.
“Immigrants as a group can have a dynamic effect on an economy,” says Kerr, adding that the phenomenon cuts across industries, with lower-skilled immigrants opening up dry cleaning businesses, restaurants, and autobody shops, and higher-skilled immigrants launching tech firms.
Why are immigrants more entrepreneurial?
Researchers aren’t exactly clear on why immigrants are more entrepreneurial, says Kerr. One set of explanations focuses on the mindset required to migrate: “The very act of someone moving around the world, often leaving family behind, might select those who are very determined or more tolerant of business risk,” he says. In previous work, Kerr found that immigrants tend to cluster in particular industries—Vietnamese manicurists, Korean dry cleaners, Haitian cab drivers—making it easier for new arrivals to learn how to launch businesses of their own.
On the more negative side, it could be that immigrants have a harder time finding jobs in existing firms that are commensurate with their skills—either because of discrimination or because companies don’t know how to interpret their skill set. “Imagine I gave you a CV of somebody who had a bachelor’s degree from [China’s] Guangzhou University—you may not know what that means in terms of quality,” says Kerr. Thus, immigrants may find going into business for themselves the best option.
In their study, Kerr and Pekkala Kerr also found that wages and benefits for jobs created by immigrant-led firms were lower than native-led firms. That gap could reflect that some immigrant startups are family businesses or employ newly arrived immigrants willing to work for less. “If what we are capturing is a job where none would otherwise exist, it’s still a positive story, but there could be negative reasons too. A lot more research is required on this front,” Kerr says, noting that either way, labor market competition among firms would close these gaps over time for mobile workers.
Immigrants account for large percentage of patents
Outside immigrant business owners, Kerr’s previous research shows that immigrants contribute to the innovation of larger companies, accounting for roughly a quarter of US patent filings. These contributions are reshaping US invention in dramatic ways.
“One out of every 11 patents developed in the United States today is either invented or co-invented by an individual of Chinese or Indian ethnicity living in the San Francisco Bay Area,” Kerr says.
Kerr notes that certain aspects of the US immigration system have been influential for these tight connections of skilled immigrants to STEM (Science, technology, engineering and mathematics) work. In contrast to a points-based immigration system used in countries like Canada, the United States principally relies on employers to select skilled immigrants through programs like the H-1B visa. “There are many pros and cons for each route, with the employer-based approach allowing firms to find candidates they really want and also screen on softer information like creativity or teamwork skills,” he says. “In practice, the flexibility of the system has let US employers go after a lot of immigrants in STEM fields.”
“UNCERTAINTY LOWERS INVESTMENT, AND IF I AM AN IMMIGRANT FACING A CHAOTIC, UNCERTAIN ENVIRONMENT, I MAY SHY AWAY FROM STARTING A COMPANY IF I FEAR BEING FORCED TO LEAVE”
While the administration has instituted high-profile travel bans and worked to undo the DACA (Deferred Action for Childhood Arrivals) policy of the Obama administration, the president has also often signaled a desire to shift the H-1B visa selection procedures. Although the US immigration policies directed towards skilled workers remain largely unchanged so far, Kerr agrees that the current system is very inefficient. (He discusses how to improve competitiveness in his new book.)
Anti-immigrant rhetoric could chill innovation
On the other hand, Kerr fears that the anti-immigrant rhetoric in America and other countries could have a damaging effect on their economies by chilling innovation and entrepreneurship by the very foreign-born workers we should be trying to encourage.
“Uncertainty lowers investment,” he says, “and if I am an immigrant facing a chaotic, uncertain environment, I may shy away from starting a company if I fear being forced to leave. For very mobile skilled workers and rising students, this uncertainty can weigh heavily into decisions about whether to come to the United States versus another countries.”
The countries that will win in the coming fight for global talent, Kerr says, are those that welcome immigrants and make them partners in building the economy.