The U.S. is in the enviable position of having an excess supply of potential immigrants. Only about 1 in 5 who apply for green cards in any year are awarded resident status. This means that America can, to a large extent, choose which immigrants it wants. Whom should it choose?
Business formation is key to economic growth, and my analysis of Census Bureau data from 2011-15 shows that immigrants are about 20% more likely than native-born Americans to found new companies. Yet immigrants are not monolithic. If America’s only goal were to maximize immigrant entrepreneurship, it would adopt a welcoming but selective policy, with criteria based on education, age and country of origin.
First, an immigrant college graduate is 38% likelier to found a business than an immigrant high-school graduate. Even among the entrepreneurs, the highly educated are likelier to be successful. Immigrant entrepreneurs with only high-school educations report average annual earnings less than half those of entrepreneurs with college educations or more.
Second, although educating immigrant children carries a cost, those who arrive when young are likelier to found businesses than those who come as adults. An immigrant who arrives before turning 20 is 34% likelier to start a company than one who arrives after 35.
Immigrant entrepreneurship also varies significantly by country of origin. The most entrepreneurial immigrants come from Israel, Iran, Syria, Lebanon and Greece. More than 9% of the immigrants from these countries founded an incorporated business, a proportion that is more than three times that of native-born Americans.
Interestingly, these countries are not necessarily the most entrepreneurial themselves. Despite a few large and well-known Israeli companies, Israel ranks 65th of 73 countries in entrepreneurship rate.
What does seem to matter is the rate of entry to America. Immigrants from countries that are underrepresented among the U.S. immigrant population have rates of entrepreneurship about 60% higher than those from overrepresented countries. When the U.S. admits only a few immigrants from a particular country, those few tend to be high achievers.
The differences in rates of business formation hold even for immigrants who arrived as babies. Evidence from the economics literature suggests that entrepreneurial parents create a family environment, act as an example, or provide their children with skills necessary to found a company. For the U.S., then, admitting entrepreneurial immigrants is a twofer: The adults start businesses, and often their kids do too.
These patterns imply that the U.S. can import entrepreneurship, but only if it acts strategically. To maximize it, the strategy should be straightforward: Let in the young and educated, and rebalance immigration policy so that it no longer favors a few origin countries above most others. America has been given the gift of choice. Why not choose intelligently?
Mr. Lazear, who was chairman of the President’s Council of Economic Advisers from 2006-09, is a professor at Stanford University’s Graduate School of Business and a Hoover Institution fellow.
Appeared in the August 1, 2018, print edition.