Immigrant Startups Can Help Fuel Economic Growth
A major goal of the recently passed House GOP tax bill is to increase economic growth. However, legislative proposals to reduce legal immigration would actually reduce economic growth. The pro-market approach is to put aside plans to cut legal immigration and instead make it easier for immigrant entrepreneurs to start businesses in the United States.
Economic growth relies on labor force growth and productivity growth. Lower levels of immigration would lead to less economic growth by reducing labor force growth and, likely, productivity growth. Joel Prakken, senior managing director and co-founder of Macroeconomic Advisers, has estimated that cutting legal immigration in half would lead to a rate of economic growth in the United States that is about 12.5 pecent lower than its projected level.
On the other hand, expanding the number of startups in America, including by removing barriers to immigrant startups, would increase economic growth. New research from the National Bureau of Economic Research finds that productivity growth in America is lower than it should be due to a “startup deficit.”
Economists Titan Alon (Northwestern University), David Berger (Northwestern University), Robert Dent (Nomura Securities) and Benjamin Pugsley (Notre Dame) found that due to fewer startup companies in the economy, there has been a “cumulative drag on aggregate productivity of 3.1 percent since 1980.” An analysis from the Washington Center for Equitable Growth notes, “Assuming that labor productivity increases are fully passed through to household income, median household income would have been about $1,600 higher.”
One way to increase startup activity in America is to facilitate the entry of immigrant entrepreneurs. Under current U.S. law, there is no reliable way for foreign nationals to remain in the United States after founding a company. Successful immigrant entrepreneurs in America almost exclusively become family or employment-based immigrants before starting a business, meaning they are sponsored by a relative or on a temporary or immigrant employment visa. Needless to say, it is difficult to attract investment or follow through on an idea if there is no guarantee an individual can remain in the United States.
Unfortunately, the Trump administration plans to rescind the International Entrepreneur rule. That rule allows foreign nationals who meet certain criteria, such as raising $250,000 or more in capital investment for their startup, to be paroled to work legally in the United States at their business. The National Venture Capital Association has filed a lawsuit that argues the Trump administration is unlawfully delaying implementation of the rule.
The most straightforward method of removing barriers to immigrant startups is to create a startup visa that awards lawful permanent residence based on founding a business, attracting investment and creating a minimum number of jobs. Last year, the National Foundation for American Policy estimated a startup visa bill by Sen. Jerry Moran (R-KS) and Sen. Mark Warner (D-VA) would create 500,000 to 1.6 million jobs over 10 years. That is similar to the job creation estimates for the House Republican tax bill and without any of the controversy over revenue or geographic impact.
Another way to help immigrant entrepreneurs would be to solve the employment-based green card problem. That problem can be addressed through higher annual limits and by eliminating the per-country limits that can lead to potentially decades-long waits for immigrants from India.
Jyoti Bansal came to America from India on an H-1B visa in 2000. He waited seven years for his employment-based green card before he could leave his job and start his new company. Doing so while still in H-1B status likely would have been impossible. The company he founded, AppDynamics, eventually grew to become a “billion dollar” company that employed over 900 people. In January 2017, Cisco purchased AppDynamics for $3.7 billion.
Jyoti Bansal is not a singular case. Research from the National Foundation for American Policy found, “Immigrants have started more than half (44 of 87) of America’s startup companies valued at $1 billion or more.” And among the billion dollar startup companies with immigrant founders, approximately 760 jobs were created in the U.S. per company.
“Immigrants are almost twice as likely as the native-born to become entrepreneurs,” concluded a 2017 analysis by the Ewing Marion Kauffman Foundation. And that is the case even though numerous legal barriers work against foreign-born individuals who wish to start and maintain a business in the United States. Imagine what could be accomplished if U.S. government policies matched up with economic common sense.
Stuart Anderson served as executive associate commissioner for policy and counselor to the Commissioner of the Immigration and Naturalization Service from August 2001 to January 2003 and is executive director of the National Foundation for American Policy, a nonpartisan research group based in Arlington, Va.