Gabriel Chaves Bosch (Queen Mary University of London)

The Impact of Immigration on Native Entrepreneurship: Evidence from Spain

Abstract

This paper examines the impact of immigration on native entrepreneurship, by exploiting rich social security data and a unique immigration episode in Spain. I find immigration has a positive effect on native entrepreneurship, which is driven by the entry of new native entrepreneurs. I argue this effect is explained by immigration lowering labour costs, as immigrants were mostly absorbed in low-paying and low-skill occupations. Lower labour costs decrease the opportunity cost of becoming an entrepreneur and thus increase the entry of new entrepreneurs, who in the absence of the immigration episode would not have become entrepreneurs. I propose a simple model of occupational choice and immigration that formalises this argument. The main testable implication of the model is that after an immigration shock, new entrepreneurs are those who have a higher entrepreneurial ability amongst wage workers prior to the shock. The empirical results are consistent with this prediction. Therefore, entrepreneurship represents a relevant margin of adjustment to immigration-induced labour supply shocks. 

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