The decline of America’s economic dynamism within the past few decades has been well-documented. With this being said, it is a concept which is not often discussed in the national news media.
I would venture to guess this is because it is not exactly a topic putting people on the edge of their seats. Never fear, however, because this faithful columnist is here to walk you through this important (but perhaps not sexy) subject.
According to Ian Hathaway and Robert Litan of the Brookings Institute, economic or business dynamism is the process by which firms are born, expand or fail. This concept could also be evaluated by looking at how often people change jobs in the workforce.
The report authored by Hathaway and Litan highlights the decline in dynamism which has occurred across the U.S. In their analysis, they show how dynamism has fallen in all 50 states and in the majority of the large metro areas in America.
Dynamism in a national or even local economy is generally seen as a positive process. This churning of both people and firms can help an economy grow and expand, and can help increase productivity. Seeing as how so much of this churning is powered by new firms entering the market, entrepreneurs are clearly an essential ingredient to the process.
Theories for why this occurred are not difficult to find. One of the major positions pushed for a while among people on the right or among libertarians is the subject of government regulation. Many think the burdensome regulations imposed by the government keeps entrepreneurs from starting businesses.
While this is a theory that sounds plausible, and one even I thought had merit to it, it recently took a hit due to some extensive economics research at George Mason University.
Back in January of this year, Nathan Goldschlag and Alex Tabarrok published a research paper titled “Is regulation to blame for the decline in American entrepreneurship?” To the surprise of even the two authors, the results indicated regulations did not account for the decline in economic or business dynamism.
Their analysis spanned many different industries across the U.S., but they were unable to show any significant statistical correlation between federal regulation and startup businesses. It also showed how one overarching theory may not capture the entire puzzle around economic dynamism.
Although there are several other ideas which have been tossed around policy debates, there is one I find particularly promising: increasing the number of immigrants in the U.S. This may not seem like a logical way to increase economic dynamism, but digging into data on the subject makes the point more clear.
See, it has been uncovered in recent years just how impactful immigrants can be on entrepreneurship in America.
According to an article by Sari Pekkala Kerr and William Kerr in the Harvard Business Review, immigrants make up a disproportionate segment of the startup community. They found while immigrants make up only 15 percent of the American workforce, they account for about 27 percent of U.S. entrepreneurs, and this number has grown steadily since the 1990s.
In Sam Fleming and Lauren Leatherby’s piece for the Financial Times, they pointed out in the most economically dynamic states in the U.S., the share of foreign-born workers is above the national average. States like Florida, California, Texas and Nevada were all more economically dynamic and had relatively high percentages of foreign-born workers. The authors even included research from the Kauffman Foundation, which indicated immigrants are more likely than native-born Americans to become entrepreneurs, which would fit with the rest of the evidence.
I am well aware calling for more immigrants is not going to sit well with certain portions of the American public, or with certain bombastic politicians. Nevertheless, I think we have here an opportunity to reserve a negative trend in our economy.
If immigrants are more willing to take chances and start businesses in the U.S., we are stupid not to let them do so. So many are quick to claim immigrants come here to “steal our jobs,” yet they do not recognize how often and how willing immigrants are to start their own businesses once they get here.
We are only hurting ourselves by ignoring how immigrants can help us turn back our declining dynamism.
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Immigrants may be key to more economic dynamism
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