Treasury Notes

 The Many Contributions of Immigrants to the American Economy

By: John Bellows

As the President recently highlighted in his remarks on comprehensive immigration reform, immigrants are not only an integral part of American culture and society but also important contributors to the United States economy. Immigrants work and pay taxes and also create new products, businesses, and technologies that lead to jobs for all Americans.

Immigrants tend to be highly entrepreneurial, creating jobs here in the United States. Research from the Small Business Administration suggests that immigrants are more likely to start a business than are non‑immigrants: while they are only 12 percent of the U.S. population, immigrants represent 16.7 percent of all new business owners in the United States. Immigrants own businesses in a variety of industries and make substantial contributions to both low-skilled and high-skilled sectors: 28.4 percent of businesses owned by those with less than a high school education are owned by immigrants, and 12 percent of businesses owned by those with a college education are owned by immigrants. Overall, immigrants own 10.8 percent of all firms with employees, providing job opportunities for thousands of Americans.

Immigrants are an important part of our international competitiveness, especially in technology-intensive and service industries. Compared to U.S.-born Americans, immigrants are more likely to hold an advanced degree and are almost twice as likely to hold a Ph.D. Many of our most productive scientists and engineers are foreign-born, keeping the United States at the forefront of global innovation. In 2006, immigrants to the United States played a role in an estimated 24.2 percent of international patent applications. Innovation leads to increased productivity for American workers and eventually a higher standard of living for all Americans.

Furthermore, immigrants help to provide business leadership in developing new products and industries. For example, a recent study found that between 1990 and 2005, immigrants started 25 percent of venture‑backed U.S. public companies, employing more than 200,000 U.S. workers. And some of the companies at the forefront of the digital revolution were co-founded by immigrants: Intel, Sun Microsystems, eBay, Google, and Yahoo to name a few examples. This entrepreneurial spirit is particularly important in the wake of the recent recession as we look towards the private sector to find new opportunities for growth and to create new jobs for American workers.

The positive economic effects of immigrants are not just limited to individuals with advanced degrees. Immigrants also play an important role in the economy by filling niches where the domestic supply of workers is limited.  In many cases, these immigrants do not compete directly with other domestic workers, but instead complement the work of U.S.-born workers.

Immigrant workers also increase the affordability and availability of services such as child care, cleaning services, and gardening. These services in turn increase standards of living and free up time for consumers to devote to alternative economic activity.

Most studies estimating the fiscal impacts of immigrants have found that the taxes (including state, federal and Social Security taxes) that immigrants pay exceed the cost of the services they use, in aggregate and over the long-run. In addition, the children of immigrants have a long-run fiscal impact similar to that of the children of the U.S.-born population. These children enter the labor force and pay far more in taxes than they receive in benefits.

These many contributions are in jeopardy if we do not fix our broken immigration system. In the 21st century, more than ever, competition is global. Whether America continues to be the most attractive investment opportunity will partly depend on whether or not we attract, train, and retain the best future workforce from around the world.

As the President has said, America is a nation that welcomes all those who share America’s ideals and values. We have always drawn strength from the brightest and most dedicated people coming here and reaching for the American dream. Fixing our broken immigration system will enable new generations of immigrants to contribute their immense dynamism and talent to our society. The President remains deeply committed to achieving this critical goal. We need a 21st century immigration system that meets our economic and national security imperatives and upholds our proud traditions as a nation of laws and a nation of immigrants. 

John Bellows is Acting Assistant Secretary for Economic Policy.

Posted in:  Economic Policy
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