Tag Archives: new business startups

Why Immigrants Are Necessary To New Business Startups

In a prior post I raised the issue of the declining number of new entrepreneurs in the U.S. It seems we are producing fewer new businesses each year.

But now, let’s dig a little deeper and look at who in the entrepreneurial community is responsible for this continuing decline.

To do this we need to go back to the Kauffman Index of Entrepreneurial Activity and look at the data analysis of Robert Fairlie at the University of California, Santa Cruz.

Although entrepreneurship overall has been declining in recent years, here is an interesting finding presented by Dr. Fairlie:

“Immigrants were nearly twice as likely to start businesses each month as were the native-born in 2013.”

Here is a chart depicting the rate of new businesses created by each of these two groups of entrepreneurs:

 

Immigrant entrepreneurs

 

We’ve known for a long time that Immigrants play an important role in America’s economy, especially in the scientific and tech areas, primarily because the U.S. is not producing enough properly educated engineers and scientists.

Immigrants are successfully filling that gap.

Now, attention is being called to the disparity in the rate of business creation between native-born entrepreneurs and immigrant entrepreneurs.

Although this disparity has been in effect for some time, it has become much more pronounced over the past decade.

What is more disturbing is what I pointed out in my last post—that 25% of America’s long-term unemployed were leaving the workforce—simply “giving up.”

That is a lot of people who apparently no longer want to look for work… or start a business.

When considering that many American workers are “giving up,” and at the same time are starting fewer new businesses… it would appear that we will have to rely more and more on immigrants to start the businesses that will grow our economy.

So, who are these “immigrants?” I don’t claim to know, other than that they come from all nations around the world.

I think it is more important to know what they do—something like this:
 
(email subscribers watch video on my blog)

 

So, here is my take-away from this information:

  • Small businesses really are the backbone of the American economy… and I expect that is true of economies all over the world.
  • Native-born Americans are starting businesses at a lower rate than they were in 1996 (see above chart).
  • Immigrants are starting businesses at a rate far greater than native-born Americans (see above chart and the “Did You Know” column on the right).
  • It seems obvious to me that an influx of entrepreneurial immigrants is extremely important to the continued growth of new business startups—and the economy of the U.S.

What’s your take on this bit of comparative information—do you believe that immigrants have a key role in new business startups… and essentially in the American economy?

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U.S. Entrepreneurial Activity for 2013

The Kauffman Index of Entrepreneurial Activity was recently released for the year 2013.

The Kauffman Index is the ONLY document created that presents information on ALL new businesses that were started as full-time businesses in the U.S. by people between the ages of 20 and 64.

This latest report presents some interesting trends in the entrepreneurial world for 2013.

Consider some of the highlights:

  • The annual rate of business creation declined from a peak of 6,780,000 in 2010, to 5,712,000 for 2013—over a one million drop in new businesses.
  • This drop in the rate of business creation was primarily due to a drop in entrepreneurial activity by men—although there was also a slight decrease in the rate of business creation by women in 2013.
  • The rate of business creation among immigrants was twice that of business creation by U.S. native-born.
  • Business creation among all age groups declined in 2013—except the age group 45 to 54, which actually increased.
  • Veterans created fewer businesses in 2013, continuing an 18 year decline in business creation by veterans.
  • The highest rate of entrepreneurial activity was in the construction industry, with the service industry coming in second.

You can download your own copy of the Kauffman report here.

The two most interesting findings in this most recent Kauffman report are that entrepreneurial activity is falling off, and that there has been no appreciable change in the rate of business activity by women over the past 18 years.

I suppose the overall drop in new business creation can be substantially attributed to fewer unemployed people trying to start a business out of necessity in 2013, than was the case in prior years when unemployment was higher.

It is likely that many unemployed people have found jobs in the improving job market, rather than trying to learn how to start and run a successful small business.

With respect to women entrepreneurs; there has been a flurry of network news lately about the rapid increase in women entrepreneurs starting new businesses.

Unfortunately, the Kauffman report does not bear this out—at least for 2013. We’ll have to wait and see what the year 2014 has to say.

Other than that, it looks like 2013 pretty much followed historical activities by creating about 6 million new full-time businesses during the year. (Remember, the Kauffman Index excludes business creation by those under age 20, and over age 64.)

So, what happened to most of those businesses—there are not six million more businesses today than there were a year ago?

Or are there? Watch for my next article where I will discuss the “Reality of Business Creation and Failure in the U.S.”

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