Bruce Meyer, Ph.D.

Labor Economics

For centuries, immigrants have arrived at America's doors with big dreams and little else.

According to the US Census, the number of immigrants more than doubled between 1980 and 2000, a trend that sparked McCormick Tribune Professor Bruce D. Meyer's interest and led him to question the effects of such a significant influx. "If you look at numbers of immigrants in the 1980s, you have to go back to 1901-10 to find as many immigrants," says Meyer. "The 1990s are even higher."

Because America has historically been a beacon for self-starters and small businesses, the trend in immigration prompted Meyer to research the effects of the influx on surrounding labor markets. Today, immigrant self-employment has become a bone of contention in many inner-city neighborhoods, despite economic theory that suggests that immigration should have little effect on the start-up rates of native-owned businesses.

"Immigrants don't have that much greater a tendency to start businesses than natives, not enough to overwhelm the fact that they're also consumers. They buy a lot of things from all businesses," says Meyer, who along with University of California-Santa Cruz economist Richard Fairlie, examines self-employment among immigrants in a recent Journal of Labor Economics article.1

Yet, despite theory, Meyer and Fairlie find that in the 1980s and 1990s immigrant self employment did indeed displace that of natives. "Our analyses seem to show that in metro areas where there are more immigrants, particularly from groups that are likely to be self-employed, the influx does have a substantial effect on self-employment of natives," Meyer says. Using 1980 and 1990 census data from 132 of the country's largest metropolitan areas, they find that for approximately every two immigrant-owned businesses, one native-owned business was crowded out.

"The results present an interesting puzzle, which runs counter to theory," Meyer says, "and which we weren't able to resolve." Even more puzzling, they did not find the expected decline in native earnings among the self-employed. "That's what we thought would drive the decline in the number of native-owned business; their earnings fall and that's why they move to other areas or take jobs in the wage/salary sector."

Instead, the authors speculate that self-employed immigrants may be primarily displacing natives who own marginal businesses or who own businesses with less profit potential. For example, ethnic restaurants might crowd out less expensive native-owned restaurants but not the more expensive native-owned restaurants. These findings, the authors argue, should be put in context: the 1980s and 1990s were also decades of strong growth among native-born entrepreneurs. Thus, it appears that self-employed immigrants may have primarily taken away opportunities for natives to start new businesses rather than putting existing owners out of business. Perhaps, in fact, the American dream does indeed have room for everyone.

1. Bruce D. Meyer and Robert W. Fairlie, "The Effect of Immigration on Native Self-Employment," Journal of Labor Economics, 21, July 2003, 619-650.