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Are all migrants more entrepreneurial than the native-born?

Published 22 January 2020 / By Carlos Vargas-Silva

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Introduction

Are migrants more entrepreneurial than the native-born? Are they more likely to be self-employed? These questions have attracted the attention of academics and have become part of a flourishing area of research. Recent evidence points to an increasing trend in self-employment and new business formation among migrants in many countries and a declining trend among the native-born. This is in addition to previous evidence that suggests that migrants do indeed have a higher propensity of entrepreneurship and self-employment compared to the native-born. But, are all migrants equal?

The exiting literature on this topic has largely ignored the heterogeneity of the migrant population, particularly regarding reason for immigration. Reflecting on the case of the United States, Kerr and Kerr (2017) suggest that a key limitation of the evidence is that we “lack a clear picture of how the successful immigrant founders enter the United States, which can be for reasons as diverse as schooling, employment, family reunification, and more.” This statement would also hold true for migrants taking residence in other countries around the world and highlights the fact that reasons for immigration may correlate with the choice of economic activity of individuals, as well as other aspects including the legal constraints they face when making their choices. While some migrants move to a country to become entrepreneurs, most move for other reasons and engage in entrepreneurship only after several years of residence in the host country.

In order to fill this gap in the evidence, Zovanga Kone, Isabel Ruiz, and I investigate the link between reason for immigration and self-employment using data for the UK. The underlying idea of our new paper released this week is that a series of “push” and “pull” factors determine the decision to enter self-employment rather than enter waged employment. In particular, we focus on factors related to the potential financial rewards from engaging in waged employment over self-employment.

The waged employment gap

In an earlier paper, Isabel Ruiz and I show that earnings from waged employment vary by reason for immigration amongst UK migrants. As summarised in Figure 1, even after controlling for socio-demographic factors, those who migrated for study reasons tend to have higher hourly earnings. Those who migrated for work reasons also do well. Those who migrated to join family members or for asylum reasons have substantially lower hourly earnings. Please note that these categories do not refer to current students, asylum seekers, etc. but to individuals who initially migrated for those reasons. These earnings differences could relate to factors that involve direct discrimination but could also reflect other aspects such as a lower degree of familiarity with workplace culture in the UK.

Figure 1: Hourly earnings gap with the UK-born by reason for immigration

Figure 1: Hourly earnings gap with the UK-born by reason for immigration

Estimated using the values from Ruiz and Vargas-Silva (2018)*. Two standard errors confidence interval included.

New results for self-employment

In our new paper, we hypothesised that the propensity to engage in self-employment will be higher for groups of migrants that are less rewarded in waged employment (e.g. those who migrated for asylum) than for those that are more rewarded (e.g. those who migrated to study).

Figure 2 summarises some of the key findings from our analysis of self-employment. First, note that the recently arrived migrants have, on average, a lower likelihood of self-employment than the UK-born across all groups. Second, after twelve years in the country, all migrant groups have higher average levels of self-employment than the UK-born. The increase in self-employment rates over time can relate to many factors including changes in legal status (e.g. obtaining permanent settlement or UK citizenship).

Second, the figure shows that the line is initially steeper for those who migrated for asylum and is flatter for those who migrated for study. In fact, for most of this period, those who migrated for asylum are more likely to engage in self-employment than the other groups.

Another finding from our analysis is that those who migrated for study and work reasons are not much different from the UK-born in their likelihood of engaging in self-employment. On the other hand, those who migrated for family reasons are, overall, 3 percentage points more likely to engage in self-employment than the UK-born. Particularly noteworthy is the fact that those who migrated for asylum reasons are, overall, 6 percentage points more likely to do so.

Figure 2: Years of residence in the UK and likelihood self-employment relative to the UK-born by reason form immigration (percentage points)

Figure 2: Years of residence in the UK and likelihood self-employment relative to the UK-born by reason form immigration (percentage points)

The zero line represents the UK-born. See Kone, Ruiz and Vargas-Silva (2020)** for the regressions coefficients used to construct the figure.

Other results

Our findings include a number of other noteworthy results. For instance, we also found differences when looking at the number of persons employed by the self-employed. Those who migrated for asylum are not significantly different from the UK-born in their likelihood of employing someone else, while those who migrated for work are two percentage points less likely to employ others relative to the UK-born.

Overall, our results suggest that failing to account for reason for immigration can mask important and interesting dynamics related to the self-employment behaviour of migrants. We hope that our paper can stimulate future research in that direction.

Citation

Kone, Z., Ruiz, I. and C. Vargas-Silva (2020) “Self-employment and reason for migration: are those who migrate for asylum different from other migrants?” Small Business Economics, doi: 10.1007/s11187-019-00311-0

Funding

The results discussed in this blog are part of the research project The Economic Integration of Refugees in the UK (ECONREF), a two-year study conducted at the Centre on Migration, Policy and Society (COMPAS) at the University of Oxford. The Nuffield Foundation funded this project, but the views expressed are those of the authors and not necessarily those of the Foundation. More information is available at www.nuffieldfoundation.org.

*https://academic.oup.com/joeg/article/18/4/855/5023833
**https://link.springer.com/article/10.1007/s11187-019-00311-0