Foreign-born entrepreneurial human capital in the US: The preference–outcome gap

Michael Roach, Henry Sauermann, John D. Skrentny 24 November 2019

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Popular discussions in the US often celebrate the entrepreneurial accomplishments of immigrants, especially in the technology sector. It is not difficult to see why. Examples of immigrant entrepreneurs such as Sergey Brin (Google) and Elon Musk (Tesla) and their sometimes dazzling accomplishments are regular features in the news. While some may posit that immigrants to the US are a self-selected population who are predisposed to entrepreneurship and willing to take big risks, researchers are only beginning to explore whether the perception of immigrant technology entrepreneurship matches reality (Hunt 2011, Kahn et al. 2017, Kerr and Kerr 2016, Kerr and Lincoln 2010).

Recent research appears to lend support to the widely held belief that immigrants are particularly entrepreneurial, finding that foreign scientists and engineers are more likely than their US native counterparts to found high-growth incorporated companies (Kahn et al. 2017, Kerr and Kerr 2016, Kerr 2019). At the same time, there are rising concerns in both the popular press (Gaskell 2019) and scholarly work (Kerr 2019, Roach and Skrentny 2019) that US immigration policies limit foreign students’ opportunities to start companies or to work for technology startups. This may be particularly problematic in engineering and computer science, where as many as half of recent graduates from US universities are foreign-born and require a work visa to remain in the US either as founder or as startup employees.

To explore this tension, we use unique longitudinal data to provide a comprehensive picture of the entrepreneurial characteristics and intentions of US and foreign-born science and engineering PhDs while in graduate school, as well as their early career outcomes after graduation (see Roach et al. 2019 for full details). Although much of the entrepreneurship literature focuses on founding, startups also rely critically on the human capital of high-skilled workers, especially in technology-intensive settings (Baron et al. 2001, Campbell et al. 2012, Hsu 2009). As such, we study entrepreneurial preferences and outcomes with respect to both founding and joining startups as employees.

The survey

We surveyed over 5,600 STEM PhD students at 39 US research universities in 2010 or 2013. We distinguished between foreign and native PhD students through a survey question that asked whether the respondent was a US citizen at the time of the survey. PhD students who were US citizens were classified as native, while non-US citizens were classified as foreign. Approximately 34% of our sample are foreign PhD students. Although differences among foreign nationalities are of interest in their own right, in this column we combine them into a single foreign category and refer readers to the full paper for analyses by nationality.

Entrepreneurial preferences

We first compared native and foreign PhDs students across a range of characteristics typically associated with entrepreneurship. An empirical challenge facing many studies of entrepreneurship is observing characteristics prior to engagement in entrepreneurship, making it difficult to determine if individuals with certain characteristics are more likely to become entrepreneurs or whether entrepreneurship shapes individuals’ characteristics. By observing individuals during graduate school and prior to participation in entrepreneurship, we are able to provide novel insights into whether foreign-born scientists and engineers differ from US natives in characteristics believed to predict entrepreneurship. We measured different preferences and traits through a series of survey questions.

We performed a series of analyses that regressed entrepreneurial characteristics onto foreign nationality (US citizens are the omitted category) controlling for degree field and university fixed effects (n=5,669). As illustrated in Figure 1, relative to US citizens, foreign PhD students are significantly more risk tolerant, report a greater importance of autonomy and financial income, as well as a higher interest in commercialisation activities. In addition, we find that foreign PhD students have a higher self-assessed ability than natives. Many of these differences are systematically correlated with entrepreneurial interests, consistent with the notion that factors such as risk aversion and interest in commercialisation are drivers of intentions to become a founder or join a startup as an employee (Roach and Sauermann 2015).

Figure 1 Differences between foreign-born PhD students and US natives with respect to entrepreneurial characteristics during graduate school

Note: *** p < 0.001, ** p < 0.01, * p < 0.05.

We further explored whether native and foreign-born PhD students differ in their preferences to participate in entrepreneurship by either founding or joining a startup in their future careers. To measure ex ante stated career preferences, we asked respondents in the first wave of the survey about founding plans (founder intentions = 1 if respondents indicated that they “definitely will start my own company”), as well as the attractiveness of working in a startup (joiner preference = 1 if this career is rated “attractive” or “extremely attractive”).

Figure 2 shows shares of PhD students with founder intentions and joiner preferences among foreign and native PhD students. Overall, approximately 21% of foreign PhD students express founder intentions during graduate school, compared to about 10% of native PhD students. Similarly, 49% of foreign PhD students express a preference for joining a startup as an employee compared to approximately 41% of native PhD students. Regression analyses controlling for degree field and university fixed effects show that these differences are statistically significant.

Figure 2 Share of PhD students with preferences for founding their own company or joining a startup as an employee after graduation

Entrepreneurial outcomes

To obtain comprehensive data on employment outcomes, we surveyed respondents again in 2013 and 2016 after they graduated and transitioned to fulltime industry employment.  We supplemented this survey data with career profile data from LinkedIn and Google searches. Specific employment outcomes are for respondents working in the US only – graduates who are working outside the US or whose current status was undetermined are not included. To identify whether PhDs were employed in a startup or an established firm, we rely upon survey and LinkedIn data on employer age and number of employees. We code startups (i.e. young and small firms) as any employer that is five years or younger and has 100 or fewer employees at the time the employee started working at the company. All other employers are coded as “established” firms.

Among the 2,318 PhDs in our sample who entered employment in US industrial R&D occupations between 2010-2016, approximately 6.3% of native PhDs were founders compared to 4.6% of foreign PhDs. Even larger differences were observed among employees, with 14.3% of natives being early-stage startup employees compared to 7.4% of foreign PhDs. Thus, foreign graduates were around 30% less likely to become founders and almost 50% less likely to join startups as employees. Regression analyses controlling for degree field fixed effects show that these differences are significant. These regressions also show that stated career preferences during graduate school are a strong predictor of employment outcomes.

Figure 3 Share of PhDs employed in industry after graduation who founded their own company or work in a startup

The preferences-outcomes gap 

Our analyses of ex ante entrepreneurial preferences and entrepreneurial outcomes reveals a surprising gap. While foreign students were considerably more likely than natives to express founding plans or an attraction to the startup work environment, they are considerably less likely to actually enter those entrepreneurial careers after graduation. Given that prior studies have found that later in their career foreign-born scientists and engineers are more likely than natives to transition to entrepreneurship (Hunt 2011, Kahn, et al. 2017, Kerr and Kerr 2016), this raises the paradox of why they are less likely to engage in entrepreneurship after graduation. One possibility is that foreign students likely face barriers or institutional constraints in the labour market that prevent them from realising their entrepreneurial aspirations. For example, although foreign PhDs can start their own companies after graduation based on their F-1 OPT, many may instead work in established firms to first obtain permanent residency before starting a company. In addition, recent research has shown that US immigration policies likely deter foreign PhDs from working in technology startups after graduation, and they instead work in large firms in order to secure a work visa to remain in the US (Roach and Skrentny 2019). Thus, current US visa policies may both dampen the founding of new companies and constrain startups’ access to a significant share of the science and engineering workforce.

Of course, non-entrepreneurial careers are not ‘inferior’, and foreign graduates who take jobs in established firms or academia can also make important contributions to innovation and economic growth (Stephan and Levin 2007). Given the potential of STEM PhDs to contribute to high-growth technology entrepreneurship, however, our results raise the concern that significant entrepreneurial human capital remains unexploited. As such, our results suggest important benefits from understanding and mitigating the barriers foreign students face in the (entrepreneurial) labour market. The US is currently facing growing competition from other countries in attracting foreign students and keeping highly educated graduates – improving labour market flexibility and supporting immigrant entrepreneurship may be one important mechanism to counteract this development.

References

Baron, J N, M T Hannan, and M D Burton (2001), "Labor pains: change in organizational models and employee turnover in young, high-tech firms", American Journal of Sociology, 106 (4), 960-1012.

Campbell, B A, M Ganco, A M Franco, and R Agarwal (2012), "Who leaves, where to, and why worry? employee mobility, entrepreneurship and effects on source firm performance", Strategic Management Journal, 33, 65-87.

Gaskell, A (2019), The Broken Talent Pipeline For Foreign-Born Scientists.

Hsu, D H (2009), Technology-Based Entrepreneurship, Wiley-Blackwell.

Hunt, J (2011), "Which Immigrants Are Most Innovative and Entrepreneurial? Distinctions by Entry Visa", Journal of Labor Economics, 29 (3), 417-457.

Kahn, S, G La Mattina, and M J MacGarvie (2017), "“Misfits”, “stars”, and immigrant entrepreneurship", Small Business Economics, 49 (3), 533-557.

Kerr, S P, and W R Kerr (2016), Immigrant Entrepreneurship.

Kerr, W R (2019), The Gift of Global Talent Stanford Business, Books, Stanford, CA.

Kerr, W R, and W F Lincoln (2010), "The Supply Side of Innovation: H-1B Visa Reforms and U.S. Ethnic Invention", Journal of Labor Economics, 28 (3), 473-508.

Roach, M, and H Sauermann (2015), "Founder or Joiner? The role of preferences and context in shaping different entrepreneurial interests", Management Science, 61 (9), 2160-2184.

Roach, M, and J Skrentny (2019), "Why Foreign STEM PhDs are Unlikely to Work for US Technology Startups", Proceedings of the National Academy of Sciences, 116 (24), 16805-16810.

Roach, M, H Sauermann, and J Skrentny (2019), "Are Foreign STEM Ph.D.s More Entrepreneurial? Entrepreneurial Characteristics, Preferences, and Employment Outcomes of Native and Foreign Science and Engineering Ph.D. Students", in The Roles of Immigrants and Foreign Students in U.S. Science, Innovation, and Entrepreneurship, NBER.

Stephan, P, and S Levin (2007), Foreign scholars in US science: Contributions and costs, University of Wisconsin Press, Madison.

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Topics:  Labour markets Migration Productivity and Innovation

Tags:  immigrants, US, students, entrepreneurship, human capital, startups

J. Thomas and Nancy W. Clark Assistant Professor of Entrepreneurship, Cornell University

Associate Professor of Strategy, ESMT European School of Management and Technology Berlin

Professor of Sociology, University of California-San Diego

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