Throughout American history, immigrants have been a vital source of economic growth, contributing ideas, innovation, wealth and a steady supply of vibrancy. This has helped position the United States as a central node in the global system of what my Kauffman colleague Ben Wildavsky calls "brain circulation." The movement of people and ideas in and out of the country is a major reason why the United States will remain a leading global economy as less dynamic countries -- namely in Europe -- shrink in importance.
Worryingly, however, a new Kauffman Foundation report shows that one important mechanism for this brain circulation -- immigrant entrepreneurship -- may be weakening. For decades, even as American opinion has ebbed and flowed regarding immigration, individuals from around the world have always treated the United States as the mecca of entrepreneurship and come here to start companies and create jobs.
The new report, coauthored by Vivek Wadhwa, AnnaLee Saxenian and Daniel Siciliano, finds that immigrant entrepreneurship has fallen in recent years in high-tech areas of the economy. According to their prior research, from 1995 to 2005, immigrants founded one-quarter of technology and engineering companies in the United States. In Silicon Valley, the share was over half.
In the latest report, the researchers find that, nationally, immigrants founded a slightly smaller portion of technology and engineering companies: 24.3 percent from 2006 to 2012, compared to 25.3 percent in the previous period. A one-percentage point drop may not sound like much, but it translates into thousands of jobs and millions of dollars of wealth not created in the United States. More alarmingly, in Silicon Valley, the immigrant entrepreneur share fell from 52 percent to 43.9 percent, a significant decrease.
According to Census data, the sectors highlighted in the Kauffman paper (including semiconductors, computers, bioscience, software and innovation/manufacturing-related services) tend to have greater employment and higher wages than many other parts of the American economy. Immigrants account for one-third of firms founded in the semiconductor sector, 28 percent in computer fields and one-quarter in innovation/manufacturing-related services. Yet these proportions have fallen over the past several years, which means the U.S. economy is getting fewer jobs and less wealth from immigrant entrepreneurs.
These data confirm anecdotal evidence that has accumulated over the past several years that potential immigrant entrepreneurs have been either leaving the United States to start businesses elsewhere or shunning the country altogether. Indeed, several other countries have begun to specifically recruit immigrant entrepreneurs. One of the most notable programs, Start-Up Chile, even attracted several American participants.
Why has high-tech immigrant entrepreneurship fallen, and what can be done about it? There are probably a few reasons for the decline. First, and most obviously, the deep recession of 2008-09 likely reduced the attractiveness of the United States as a market. If this is true, then we might expect immigrant entrepreneurship to bounce back in the coming years.
Second, in the last decade the economies of India and China have boomed, creating more opportunities for entrepreneurs to stay home and start companies. Since India and China are the two largest sources of high-tech immigrant entrepreneurs, this shift is bound to affect who chooses to come to the United States to build a company. Yet this change likely only accounts for part of the overall decline -- Indian immigrants increased their share of immigrant-founded companies from 7 percent in 2005 to a whopping 33 percent in 2012.
Other reasons for the decline probably concern the U.S. immigration system, which is not generally known for its ease of navigation. While U.S. Citizenship and Immigration Services (USCIS) has become more vocal in its support for attracting entrepreneurs (it established an Entrepreneur-in-Residence program not long ago), stories still abound about the difficulty of coming to America to start a company. (A new website, www.immigrantexodus.com, collects some of these stories and experiences.)
A backlog of visa applications has likely kept out thousands of entrepreneurs, and the H-1B administrative system can be nearly impossible for young companies trying to hire from abroad or keeping a cofounder in the country. Earlier this year, the Partnership for a New American Economy released a report on the American immigration system, the title of which said it all: "Not Coming to America." Wadhwa also recently published an excellent book, The Immigrant Exodus, that provides an overview of how the United States risks shooting itself in the foot if we fail to attract immigrant entrepreneurs.
The good news is that more and more people have come to realize the importance of immigrant entrepreneurs, and there are several concrete steps that can be taken to re-establish the United States as a magnet for entrepreneurial talent. The Startup Act, introduced twice into both chambers of Congress with bipartisan support, would increase the number of visas available for immigrant entrepreneurs and for foreign students studying science and technology at American universities. Others have pointed out that changes can be made administratively rather than legislatively that would ease a good deal of the visa gridlock. And, another recent Kauffman paper outlined changes that could be made in allowing foreign students to start companies. Importantly, several changes simply involve administrative clarification to colleges and universities.
As the United States struggles with sluggish job growth and disturbingly high long-term unemployment, we must do everything we can to promote enduring sources of job creation and innovation. Immigrant entrepreneurship has consistently been one of those sources. If it is beginning to wane, then we have a serious problem.