Why Immigration is Crucial to Small Business Growth

May 9, 2017 Company News

Immigrants have always been key to the American economy, significantly contributing to the country’s tax revenue and total economic output. A report (Center for Immigration Studies) by Harvard states, in 2013, immigrants added $1.6 trillion to total US gross domestic product.

According to a study by Small Business Administration, which was based on an estimate from 2000 US Census data, immigrant business owners made remarkable contributions to business income, generating $67 billion of the $577 billion in the US business income. While a quarter (nearly $20 billion) of the business income was generated in California, one-fifth of the business income came from New York, Florida, and New Jersey.

A statistical analysis based on American Community Survey (ACS) and the Survey of Business Owners (SBO), has found that immigrants account for roughly 28% of small business owners in the US, and they are two times more likely to become entrepreneurs than the native-born businessmen.

Let’s take a look at some of the strongest indicators of economic growth in the United States, propelled by immigrants.

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Entrepreneurship

The American tech industry has prospered because of immigrants, with over 40% of Fortune 500 in 2010 were founded by an immigrant or their children. Moreover, other Fortune 500 biggies such as AT&T, Apple, McDonald’s, General Electric, and Bank of America have played a significant role in the growth of the economy.

These companies generated in excess of $1.7 trillion in revenue and employed a staggering 3.6 million people in the United States in 2010 alone.

Here are some of the most influential entrepreneurs of the US tech industry.

  • Sergey Brin, the founder of Google, fled the Soviet Union about 40 years ago.
  • Jerry Yang, the founder of Yahoo, emigrated from Taiwan at age 10.
  • Satya Nadella, CEO of Microsoft, emigrated from India.

A recent study by the National Foundation for American Policy revealed the gigantic contributions of immigrant entrepreneurship to the American economy. Conducted on 87 start-up companies valued at $1 billion or more, the study found 44 of them had at least one immigrant founder.

Further, the collective value of these 44 start-up companies stood at a mind-boggling $168 billion – that was nearly 50% of the stock market value of Russia and Mexico.

Human Capital

Apart from the supply of skilled labor, the infusion of high-skilled immigration of human capital to the US has driven nation’s innovation and technological transformation. According to Keith Maskus, an economist at the University of Colorado, the country gains a whopping 62 future patent applications for every 100 international students who earn science or engineering Ph.D.’s from American Universities.

For example, Noubar Afeyan, an immigrant, and CEO of Flagship Ventures, has founded and co-founded as many as 38 companies in the United States and owns more than 100 patents. Likewise, Jyoti Bansal, an India-born immigrant and the founder of AppDynamics, has employed over 900 people. His company is valued at $1.9 billion. These are just a few examples of how immigration has resulted in human capital formation and job creation in the US economy.

Small Business Creation and Revenue Generation

A report, entitled “Open for Business” by New American Economy, revealed how immigrants are driving small business creation in the United States. As per the report, in 2010, small businesses founded by immigrants, generated over $775 billion in sales and $100 billion in income, apart from paying an estimated $126 billion in payroll taxes. To put that in perspective, each one of these immigrant-founded businesses employed approximately eight employees and created four million jobs in the United States collectively.

Interestingly, even unauthorized immigrants living in the US today contribute a net $13 in payroll taxes annually, helping strengthen the country’s social security system.

Final Thoughts

Immigrants have historically played a pivotal role in building the economy of the United States. Their presence is a catalyst for the country’s growth, from both economy and culture standpoint. Those who believe immigrant-unfriendly policy can drive the nation forward should look at Japan – a country whose post-war economy collapsed in the early 1900s because of the shortage of skilled workers.  Therefore, immigrants are indispensable for sustaining a prospering economy, and crucial to the growth of small business economy.