Search

Why are immigrants more likely to own businesses than natives? Some scholars emphasize immigrants' "preferences" for entrepreneurship, while others suggest "constraints" on non-entrepreneurial alternatives. I propose to disentangle these two accounts by leveraging differences in the "Immigrant-Native self-employment gap" across generations. Based on the assumption that labor market constraints are more readily alleviated by second-generation immigrants, while innate preferences are more inheritable, I argue that the relative influences of preferences and constraints can be inferred from comparisons of the gap between first- and second-generation immigrants. Analyses of nationally representative U.S. data reveal the following: i) the gap is smaller for second-generation immigrants, especially among ethnic groups that face greater labor market frictions; ii) these disadvantaged ethnic groups make greater investment in human capital of their children; and iii) conditional on entering self-employment, second-generation immigrants are more likely to incorporate their businesses relative to their parents. I discuss how these results can be interpreted as how immigrants facilitate upward socioeconomic mobility through investments in entrepreneurship and human capital. [ABSTRACT FROM AUTHOR]