Immigrants are essential to economic growth in America. That is the conclusion of a recent report on The Economic and Fiscal Consequences of Immigration released by the National Academy of Sciences (NAS).
What are the three reasons why immigrants are important to economic growth? Labor force growth, entrepreneurship and human capital.
Labor Force Growth
If those who oppose immigration were correct, then Japan, an immigrant-unfriendly country, should be an economic juggernaut. It is not. Japan is facing an economic and demographic crisis. “Japan has the world’s oldest population, as well as a low birth rate and little immigration, but its growth problems go far deeper,” noted a recent analysis by Bloomberg. “In the early 1990s, the country’s postwar growth boom collapsed – decades of deflation followed and Japan started to suffer a shortage of workers.”
In contrast, the National Academy of Sciences concluded, “Immigration supplies workers, which increases GDP [gross domestic product] and has helped the United States avoid the fate of stagnant economies created by purely demographic forces – in particular, an aging (and, in the case of Japan, a shrinking) workforce.”
“The contribution of immigrants to human and physical capital formation, entrepreneurship, and innovation are essential to long-run sustained economic growth,” according to the NAS report.
Despite this recognition of immigrant entrepreneurs, a shortcoming in the National Academy of Sciences report is that at the same time it stated that Americans gain from immigrant entrepreneurship and innovation, it left these out of its numerical calculations. (Much time in the study is spent on the small distribution effects that are conceded to be short-term and focused, to the extent they exist, which itself is a subject of debate, on recent immigrants and natives that did not graduate from high school.)
To give an idea of how large the benefit of immigrant entrepreneurship likely is in America, note that a recent National Foundation for American Policy study of just 87 startup companies valued at $1 billion or more found 44 (more than half) had at least one immigrant founder. Moreover, at $168 billion, the collective value of just these 44 immigrant-founded companies was almost half the value of the stock markets of Russia and Mexico.
Immigrant Noubar Afeyan, CEO of Flagship Ventures, founded or cofounded 38 companies in the United States and has over 100 patents. Indian-born immigrant Jyoti Bansal is the sole founder of AppDynamics, a company employing more than 900 people and valued at $1.9 billion.
Yet the National Academy of Sciences calculations imply Noubar and Jyoti would only make an economic contribution to America to the extent they as workers increased the supply of labor. That makes little sense since it ignores the dynamic, job creation (and other) contributions Noubar Afeyan, Jyoti Bansal and other immigrant entrepreneurs make to the U.S. economy.
To place this in a nationwide perspective: “Immigrant business owners make significant contributions to business income, generating $67 billion of the $577 billion in U.S. business income, as estimated from 2000 U.S. Census data,” according to a report by the Small Business Administration. “They generate nearly one-quarter of all business income in California – nearly $20 billion – and nearly one-fifth of business income in New York, Florida, and New Jersey.”
A similar story can be seen with patents and human capital. “Perhaps even more important than the contribution to labor supply is the infusion by high-skilled immigration of human capital that has boosted the nation’s capacity for innovation and technological change,” reported the National Academy of Sciences. But again, no dollar figure is estimated for this benefit.
University of Colorado economist Keith Maskus found that for every 100 international students who earn science or engineering Ph.D.’s from American universities, the nation gains an impressive 62 future patent applications.
The bottom line conclusion
“Innovation carried out by immigrants also has the potential to increase the productivity of natives, very likely raising economic growth per capita,” according to the National Academy of Sciences. “In short, the prospects for long run economic growth in the United States would be considerably dimmed without the contributions of high-skilled immigrants.”