Date: Wed, 3 Dec 2008 22:43:21 -0800 From: Norm Matloff To: Norm Matloff Subject: Wadhwa column To: H-1B/L-1/offshoring e-newsletter Over the last few years, Vivek Wadhwa and I have done much friendly sparring over certain aspects of the H-1B issue--but not the aspects one might surmise. As a former tech CEO, you'd expect Vivek to support the H-1B program and to claim that the tech industry suffers from a labor shortage. But no--Vivek agrees with me that the H-1B program is generally used by tech employers as a mechanism to legally import cheap labor. Moreover, he's been saying for several years now that there's no tech labor shortage. (He took a very novel approach in investigating whether employers were having trouble hiring engineers--he asked the HR people, who said they weren't encountering any difficulty.) He even agrees with me that the presence of the foreign workers is a major factor fueling the serious problems older American programmers and engineers have in getting work in their fields. Yet Vivek and I have sharply disagreed on the issue of green cards. There have been various bills in recent years that would expand the annual green card caps in the case of tech people who originally came to the U.S. as foreign grad students, and would more or less automatically grant green cards to this group. (This is supported by most Democrats on the Hill, including President-Elect Obama.) I've argued against these proposals, showing they would be harmful, especially in the current economic turmoil, and that above all the fundamental rationale for such legislation--that we need these foreign workers in order to stay innovative--is invalid. Vivek has released several non-peer-reviewed studies that assert that the foreign workers are more entrepreneurial, and more engaged in patent activity, than the natives. When his patenting study came out, I noted that there were very serious anomalies in the data, and that in fact there probably were major flaws in the data collection methodology. Some time later, Vivek in fact confirmed these flaws, and conceded that his findings had not been valid. (For the details, see http://heather.cs.ucdavis.edu/Archive/WadhwaIV.txt) But he has stuck to his claim that immigrant engineers are more entrepreneurial than native ones, as you will see in his column enclosed below. In preparing it, he communicated with me several times to make sure he was describing my views correctly, and basically told me to hold onto my hat, as his column would show once and for all that his views, not mine, are correct. With this kind of buildup, his column turned out to be disappointing and highly bewildering. Disappointing, because I was hoping he would announce some new interesting data, and bewildering because I cannot figure out why Vivek thinks the Fairlie research he cites below supports Vivek's views. On the contrary, Fairlie found that the situation is exactly opposite to what Vivek claims/wants it to be. The central problem is that Vivek's entire analysis violates the age-old rule that one does not mix apples and oranges. Keep in mind my view, which is simply that immigrant engineers have been no more entrepreneurial than native engineers. This is the relevant issue in the work visa debate, because it contradicts the industry lobbyists' claim that our liberal work visa policies have increased the total amount of entrepreneurial activity in the U.S. tech sector. As Vivek himself says, if I am correct in my assertion that the two groups have about the same rates of entrepreneurship, then immigration has not brought a net increase in the number of tech businesses, as the immigrant engineers displaced the native ones. Therefore it's irrelevant to the Matloff/Wadhwa debate to compare the rate of business establishment by immigrant Indian engineers to the rate of U.S. natives opening hot dog stands. That is what Fairlie's paper does, looking at all businesses IN THE AGGREGATE. (His paper is at http://people.ucsc.edu/~rfairlie/papers/published/sba%20final%20report%20immigrant%20business.pdf) This then goes to the separate debate on what mix of immigrants we should be taking, e.g. should we take fewer low-educated ones and more of the well-educated? But that is indeed separate, irrelevant to the specific issue Vivek and I have been debating, which is whether immigration has produced a net increase in business activity, BEYOND what the natives would have had had they not been displaced. Fairlie is very careful, and does not make the claims Vivek does. On the contrary, Fairlie's research has shown that immigrants in the tech area are actually LESS entrepreneurial per capita than are natives in tech. He states this repeatedly in his July 2008 paper, High-Technology Entrepreneurship in Silicon Valley: Opportunities and Opportunity Costs (http://people.ucsc.edu/~rfairlie/papers/siliconhitech2.doc). And this of course is consistent with what I've found. I've noted before, for instance, that the data in one of Vivek's own papers showed that though 50% of Silicon Valley tech businesses were started by immigrants, the immigrant proportion of the Silicon Valley tech workforce is MORE than 50%; this shows that the immigrants are actually slightly less entreprenial than the natives, just as Fairlie found. Even Fairlie's analysis could be more detailed. For example, what kinds of businesses are we talking about? Even Saxenian, the first to trumpet immigration entrepreneurships in Silicon Valley, found that a large chunk of the immigrant businesses in Silicon Valley were involved in computer wholesaling, not engineering. But in any event, Fairlie's findings are exactly the opposite of what Vivek is claiming them to be. Vivek's column follows below. Norm http://www.businessweek.com/print/smallbiz/content/nov2008/sb20081125_711355.htm Viewpoint November 25, 2008, 8:28AM EST Immigrants Are More Likely to Be Entrepreneurs A new study shows conclusive evidence that immigrants are more likely to start new businesses. And those businesses make significant contributions to U.S. economic activity By Vivek Wadhwa I published a research report back in 2006 showing that over 50 percent of Silicon Valley engineering and technology startups were founded by immigrants (as were 25 percent of such startups nationwide), I concluded that immigrants were more likely to be entrepreneurs. Most of the feedback I received was extremely positive. But I also took fire from a few well-known open-immigration policy opponents, including professor Norm Matloff of the University of California at Davis, who said that large existing immigrant populations in tech centers skewed the results of my survey of 2,054 companies. Matloff has argued, in academic listservs and in a volley of e-mail exchanges with me, that all things being equal, immigrants are no more likely to start businesses than U.S. citizens and permanent residents. He says this is particularly true in Silicon Valley, because immigrants comprise about 50 percent of the population. Therefore, his argument goes, immigrants really only displace entrepreneurs who are U.S. citizens and permanent residents, rather than augment the total number of startups and add real economic value. But I continued to believe the high immigrant population was reflective of higher-risk appetites required for environments like Silicon Valley, where joining a startup is always a risk. In other words, choosing to start a business is a process of self-selection, not a numbers game that happens because a lot of immigrants happen to live in one area. At a gut level, one would think that immigrating to a new country is risky and therefore new immigrants have a higher risk appetite than U.S.-born folks. Truly conclusive data, however, was difficult to put together due to limitations on sample sizes. omprehensive SBA Study Now, a November 2008 study by Robert W. Fairlie, a professor at the University of California at Santa Cruz, gives the strongest evidence to date that critics of open-immigration policies have misjudged the impact of immigrants on the U.S. economy. Issued under the auspices of the U.S. Small Business Administration, the peer-reviewed study pulled data from three large, nationally representative government data sets, and found that immigrants are almost 30 percent more likely to launch a business than non-immigrants. According to the study, roughly 16.7 percent of all new business owners in this country are immigrants, yet immigrants make up only 12.2 percent of the workforce in the U.S. It also found that immigrant-owned businesses contributed roughly $67 billion to the country's business income, out of a total of $577 billion in 2000. Although this total is slightly below a one-to-one ratio of immigrant population to immigrant-owned business, it is still a very significant chunk of economic activity. And keep in mind, these economic activity findings were from eight years ago, so the total economic activity contribution has likely increased since then. The data from the study also disprove the commonly held perception that immigrants are most heavily represented in lower-income tiers. According to Fairlie's research, the average annual net business income of an Indian-owned business is $83,000, the highest average of any immigrant group broken out in the research and higher than the average for U.S.-born entrepreneurs by $33,000. Chinese-owned businesses slightly underperformed those of U.S. born-entrepreneurs by $3,000 per year, but businesses of many other immigrant nationalities, including Taiwanese, Canadian, Filipino, and Greek, strongly outperformed the average for U.S.-born businesses. he Numbers Don't Lie It's no surprise that the study showed immigrant business owners comprise an even higher percentage of total business owners in some of the most dynamic business locales in the country. In California, over 30% of all businesses are immigrant-owned. In New York, nearly a quarter of all businesses are immigrant-owned. Nor were the immigrant businesses clustered in areas such as high tech or lawn care. Immigrant founders held disproportional shares of a variety of businesses, including media and transportation. These obvious discrepancies between my critics' assertions and reality could probably be explained away with some logical gymnastics. But the numbers, in this case, simply don't lie. The three data sets used in Fairlie's study are some of the largest that could be accessed for research like this. This research, once and for all, puts an end to debate about the value immigrant entrepreneurs bring to America's economy. The answer is clear now--a whole lot. Wadhwa is Wertheim Fellow at the Harvard Law School and executive in residence at Duke University. He is a tech entrepreneur who founded two technology companies. His research can be found at www.globalizationresearch.com