The role of self-employment in immigrants’ economic assimilation: a longitudinal analysis

Abstract Immigrants have been shown to have higher self-employment rates than the native-born. However, unlike socioeconomic outcomes such as education and earnings, for which a narrowing gap with natives signals a positive outcome, immigrants’ high self-employment rates have a more ambivalent meaning. Self-employment may reflect problems in the economic assimilation process if it is used as a strategy by immigrants who are underpaid in the wage/salary labor market or if self-employment leads to lower earnings growth in the long run. We use a restricted dataset in which respondents of the Current Population Survey have been linked with their tax records to examine the self-employment trajectories of immigrant men who arrived as adults over their first 20 years since arrival. The longitudinal information allows us to test whether immigrants who transition to self-employment are those who are underperforming in the wage/salary labor market. We are also able to assess the long-term impact of self-employment by comparing the earnings growth of immigrants before and after becoming self-employed. Our findings indicate that immigrants who turn to self-employment are underpaid in the wage/salary labor market. Self-employment also often leads to lower long-term earnings growth although there are important differences among immigrants by race and ethnicity and level of education.