Immigration reform’s ‘free lunch’

Correction: A previous version of this column referred to the “Start-Up Visa Act.” The correct name of the act referred to in the piece is Startup Act 3.0. This version has been corrected.


Wadhwa argues that, with the Start-up Visa is an exception to the rule that “there’s no free lunch.” (Bob Gubbins/ISTOCK PHOTO)
Vivek Wadhwa
Contributor, Innovations February 27, 2013

The saying goes, “there’s no such thing as a free lunch.” But the Startup Act 3.0, in its third incarnation, is starting to look a lot like an exception to the rule. The bill, introduced in the Senate, promises to jump-start the economy through the creation of new businesses. It provides visas for 75,000 foreign students and skilled workers to start companies. Individuals, in order to qualify, must already be in the United States on temporary visas. Their companies must receive an investment of at least $100,000 and employ a minimum of two U.S. workers in their first year, and five by the end of the third year.

The Ewing Marion Kauffman Foundation analyzed data on firm survival and employment from the Business Dynamics Statistics of the U.S. Census Bureau, and skilled-immigrant company-formation data that my research team, with funding from Kauffman, had previously gathered. Kauffman conducted the analysis to estimate how much the Start-up Visa, if adopted in its current form, could boost the economy. They released a white paper with their results Wednesday. Kauffman estimates that, conservatively, within ten years, a Start-up Visa could lead to the creation of between 500,000 and 1.6 million jobs-a potential boost to the economy of between $70 billion and $224 billion a year. That translates into a rise in GDP of between 0.5 and 1.6 percent, as computed using a methodology employed by the White House’s Council of Economic Advisors.

Vivek Wadhwa is a fellow at Rock Center for Corporate Governance at Stanford University, director of research at Center for Entrepreneurship and Research Commercialization at Duke, and distinguished fellow at Singularity University. His past appointments include Harvard Law School, University of California Berkeley, and Emory University. View Archive

The estimate of 500,000 jobs is based on the assumption that immigrant-founded start-ups hire the fewest people required by the Start-up Act. If these companies resemble average U.S. businesses, then the number of jobs could be roughly 889,000-an economic boost of around $140 billion per year. If half of the companies are engineering and technology companies like those my team researched, the number of jobs could reach 1.6 million-a $224 billion annual boost. This is not an unreasonable assumption if one takes into account an analysis by the Brookings Institution, which found that STEM occupations accounted, in the vast majority of regions requesting skilled-worker visas, for more than half of the requests.

My expectation is that the boost could be far greater than the most optimistic numbers in Kauffman’s report. The report acknowledges, however, that the researchers only estimated the jobs created by immigrant entrepreneurs while they were on the Start-up Visa. Most successful technology entrepreneurs start more than one company. They keep building on their successes and start funding and mentoring other entrepreneurs. So there are greater long-term benefits, making it more likely the numbers will be much higher.

Kauffman also did not account for the innovation and productivity benefit that these start-ups will bring to the U.S. economy, such as new types of medical products, breakthroughs in energy technologies, and greater advances in computing. There is also a possibility that some of these start-ups will excel, perhaps becoming the next Google or Apple. Then the question is: Why limit the number of Start-up Visas to 75,000?

The benefits of a Start-up Visa are so clear that it has broad support on both sides of the political spectrum. Sadly, this legislation is languishing - a victim of political gamesmanship. Some on the left insist that a Start-up Visa must be passed as part of comprehensive immigration reform. So, while these political battles rage, we are closing the door on foreign-born entrepreneurs.

The sensible thing to do is to immediately pass a Start-up Visa so that immigrant entrepreneurs can get to work on starting companies that stand to eventually employ hundreds of thousands of American workers. This will likely give the economy a quick boost and increase public acceptance of comprehensive immigration reform. What other policy can we implement that, at practically no cost to taxpayers, provides such returns?

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