Migrant entrepreneurship: fuzzy numbers and real impacts

The Centre for Entrepreneurs think tank recently made waves with this report on migrant entrepreneurship. The headlines are striking: 450,000 migrants set up 1 in 7 UK companies, at almost twice the rate of the UK population (17% vs 10%).

Here are some reactions. Overall, this is a welcome piece of work. However, I have some reservations about the numbers. And the report – understandably – doesn’t address some of the big issues where we still need answers.

First, praise where it’s due. This is completely new analysis which reflects serious effort. The actual analysis was done by Duedil, who crunched around 3m raw observations to get these numbers. (At NIESR we’ve been working with similar data: it’s a lot of work.).

The analysis has also shone some much-needed light on the role of migrants in entrepreneurship. As CFE point out, policymakers are only just starting to take this stuff seriously. Canada and Chile already have proper start-up visas. The US seems stuck in endless discussions. The UK is still getting there. And the underlying evidence base is under-developed.

Second, the data. It’s clear there’s a story here, and this is why the CFE work is welcome. But push a bit and the numbers are less convincing. It’s hard to tell whether the true numbers are higher or lower: the results are fuzzy.

One big issue is that there’s no correction for corporate structure – the raw data is legal entities, not businesses, and the true number of firms could be a lot smaller than the count of corporations. The relative contribution of non-UK entrepreneurs could then be higher or lower than before.

Another is that companies with migrant and UK-born founders are counted as migrant-founded. That makes sense. But without knowing what share of ‘migrant-founded’ companies are co-founded it’s hard to be clear on the true migrant contribution.

A third issue is that the data provides the nationality of company directors, not birth country. As CFE point out, this likely underestimates the count of migrant entrepreneurs (since many won’t take UK citizenship). But since there’s also many more migrants than non-UK nationals in the wider workforce, this likely reduces the share of migrant entrepreneurship. The report shows that 17% of non-UK nationals set up companies in the UK. Based on LFS figures, for that figure to hold for migrants the data would have to uncover a further 290,000-odd migrant entrepreneurs on top of the 450,000-odd non-UK nationals already identified. I’m not sure if that’s really plausible.

Full disclosure: We’ve asked DueDil for the raw data so we can see how they did the analysis: they’ve declined. We’ve also put our questions to them: they haven’t responded yet, but I’ll update this post when they do.

More broadly, this is descriptive analysis, which understandably doesn’t try to look at impacts (exploring these is a project in itself). CFE are upfront about this, although they suggest those impacts are likely to be large and positive. I think there are (at least) four big questions for further research.

1/ What is the relative economic impact of migrant-founded companies versus co-founded and native-founded? Do they tend to do better or worse in terms of sales, productivity, attracting finance or coming up with new ideas?

2/ What explains this? Is it a ‘migrant x-factor’, or something about the company, or industry-level effect, location (say in a city)? Or some combination of these?

3/ What is the additional impact of migrant top team members? There’s no counterfactual here, but one possible workaround is to look at companies where a migrant director joined, and compare the change in their performance against similar companies where this didn’t happen. The data in the CFE report would provide a great basis to do this.

4/ What is the distributional impact of migrant (co)-founded companies? Do new migrant firms tend to complement or displace UK-founded companies? The evidence suggests that more competition in an industry means some firms innovate out of trouble, while others exit. Working out who are the winners and losers is politically crucial. As consumers, we may just want the best and cheapest goods and not care who makes them. But government needs to decide if they are interested in competitive markets per se, or the competitive position of UK businesses. Industrial policies often get into trouble for this reason. But the same issues likely apply to immigration policy too.

This piece was originally posted on the squareglasses blog.