All election season, the economy has been the top issue concerning Americans. Post-election, the issue of immigration is now also figuring...
All election season, the economy has been the top issue concerning Americans. Post-election, the issue of immigration is now also figuring prominently in the national discussion.
These two issues are linked more than most people realize. While pundits on both sides of the aisle are speculating on the electoral implications of immigrants, the truth is that immigrants’ considerable contributions to the U.S. economy are of chief importance. That is why the George W. Bush Institute’s 4% Growth Project is launching new work on immigration and economic growth.
The 4% Growth Project is joining the Federal Reserve Bank of Dallas to host a conference on December 4 that focuses on economic growth and immigrants’ contribution to it. Among those appearing will be Pia Orrenius of the Dallas Fed, Richard Vedder of Ohio University, Jennifer Hunt of Rutgers University, Stephen Moore of the Wall Street Journal, Clint Bolick of The Goldwater Institute, and Andrew Puzder, CEO of CKE Restaurants, Inc. Ambassador James K. Glassman, founding executive director of the Bush Institute, will deliver a keynote address.
In addition to this conference, the Bush Institute is funding or producing three new books on immigration. The first, which I am writing, is a basic handbook on the economic contributions of immigrants. In 2013 the Institute will release two more manuscripts, one by Richard Vedder and another by Stephen Moore. These latter books will place the issue of immigration in a broader historical context and discuss pro-growth immigration reform that could help propel our economy forward today. But this article will confine itself to the economic topic to be discussed at the conference.
It should not come as a surprise that immigrants provide a boost to the U.S. economy. After all, it is not easy to leave one’s native land behind and make out for a new country of an unknown territory and a foreign culture. But the allure of growth has led immigrants throughout history to flock to America’s shores. Immigrants cling to the belief that in America, opportunities exist that will allow them to improve their lives.
But the benefits of immigration do not accrue just to the immigrants themselves. Indeed, in their quest to improve their own personal lots in life, immigrants contribute strongly to the growth of the U.S. economy. They are a spark that helps keep America’s flame burning brightly. Immigrants serve as catalysts for growth in a number of ways.
First, immigrants expand the size of America’s workforce, growing the total size of the economy. Data from the U.S. Census Bureau show that in 2011 immigrants accounted for 13% of the total U.S. population, but accounted for almost 16% of the U.S. civilian labor force. This tells us that immigrants are carrying more than their own weight. What’s more, over the last decade (2003 to 2012), immigrants have contributed to more than half of the growth in America’s labor force. In this way, immigrants are responsible for supplying the bulk of the new workers that a growing economy requires.
Of course, the way an economy grows over the long-term — and long-term growth should be our country’s goal —is through increased productivity. Productivity means doing more with less, or put another way it means achieving more output while using fewer inputs.
One way an economy can improve its productivity is by better matching workers with the jobs that require their specific skills. Immigrants contribute in a major way to what economists refer to as labor force “specialization.” Because of their different backgrounds, immigrants generally possess skills that are different than those of natives. Since immigrants have different skills, they complement native workers (rather than substitute for them), allowing workers to specialize on the types of tasks for which they hold a comparative advantage. When workers fill jobs that maximize their skills, they are able to work more efficiently.
This efficiency enhances productivity and allows an economy to expand. Another way to achieve long-term economic growth is through innovation. While productivity refers to doing things more efficiently, innovation refers to doing things in new ways, or doing entirely new things altogether.
Measuring the amount of innovation in an economy can be a challenging task. But patents and scholarly publications are two good barometers that hint at the level of innovation in an economy. This is so because in order to be granted a patent or have a scholarly article published, an outside reviewer must certify that the patent or article actually expresses a useful new idea.
From looking at these two indicators, it is clear that immigrants innovate all the time. Research by Vivek Wadhwa and his team of researchers shows that immigrants are responsible for nearly one-quarter of all international patent applications filed by residents of the U.S. Furthermore, an analysis by the economist Jennifer Hunt reveals that immigrants are more likely than natives to actually be granted a patent, and to commercialize a patent. Hunt also finds that immigrants are more likely to have a scholarly publication, and on-average they author a greater number of publications than do native citizens.
These patents and publications represent the new ideas that drive innovation in our economy. With more immigrants our economy would benefit from more new ideas and grow faster. Entrepreneurship is another crucial factor that allows an economy to expand. Immigrants have proven to be especially entrepreneurial, evidenced by their track record of starting new businesses. A report by the Fiscal Policy Institute indicates that in 2010 immigrants accounted for 18% of all small business owners despite representing 12.9% of the total U.S. population in that year. In the two decades from 1990 to 2010, immigrants were responsible for just under 30% of the total growth in the number of people who own a small business.
But immigrant entrepreneurship is not limited to just small businesses. Wadhwa has found that among all major technology and engineering firms founded in Silicon Valley between 1995 and 2005, more than half had at least one immigrant as a key founder. Nationally, over a quarter of all major technology and engineering firms founded over this period were started by an immigrant.
Collectively, in 2005 these immigrant-founded firms generated more than $52 billion in sales and they had created almost 450,000 jobs worldwide. Every year through its “Fortune 500” list, Fortune magazine identifies America’s biggest and most important companies. It is useful to know who is responsible for starting these firms. A 2011 report by the Partnership for a New American Economy attempts to do just this, examining the ethnic backgrounds of the founders of all the companies listed in the 2010 edition of the Fortune 500.
The results are striking, showing that 41% of all Fortune 500 companies in 2010 were founded by either an immigrant or the child of an immigrant. These include major companies recognizable to any American household, such as AT&T, Kraft, Google, Yahoo!, and eBay. The Bush Institute updated this analysis using the 2012 edition of the “Fortune 500” list, and found that 42% of companies were founded by an immigrant or the child of an immigrant, a slight increase from the 2010 “Fortune 500” analysis. It is clear that immigrant entrepreneurship is having a tremendous impact on the U.S. economy.
Unfortunately, in the debate over immigration, the vital role that immigrants play in the economy is too often forgotten. For this reason the George W. Bush Institute is leading an effort to highlight the importance of immigrants to our economy and also to convene a national discussion that yields substantive solutions to America’s immigration problems. The December conference is just the beginning.
