journal of entrepreneurship 2014 irastorza 35 56

8/11/2019 Journal of Entrepreneurship 2014 Irastorza 35 56

1/23

http://joe.sagepub.com/ Journal of Entrepre neurship

http://joe.sagepub.com/content/23/1/35The online version of this article can be foun d at:

DOI: 10.1177/0971355713513352

2014 23: 35Journal of Entrepreneurship Nahikari Irastorza and Iaki Pea

Earnings of Immigrants: Does Entrepreneurship Matter?

Published by:

http://www.sagepublications.com

can be found at:Journal of Entrepreneurship Additional services and information for

http://joe.sagepub.com/cgi/alertsEmail Alerts:

http://joe.sagepub.com/subscriptionsSubscriptions:

http://www.sagepub.com/journalsReprints.navReprints:

http://www.sagepub.com/journalsPermissions.navPermissions:

http://joe.sagepub.com/content/23/1/35.refs.htmlCitations:

What is This? - Jan 29, 2014Version of Record>>

at INDIAN INST OF MGMNT on July 10, 2014 joe.sagepub.comDownloaded from at INDIAN INST OF MGMNT on July 10, 2014 joe.sagepub.comDownloaded from
http://joe.sagepub.com/http://joe.sagepub.com/http://joe.sagepub.com/http://joe.sagepub.com/content/23/1/35http://joe.sagepub.com/content/23/1/35http://joe.sagepub.com/content/23/1/35http://www.sagepublications.com/http://joe.sagepub.com/cgi/alertshttp://joe.sagepub.com/cgi/alertshttp://joe.sagepub.com/subscriptionshttp://www.sagepub.com/journalsReprints.navhttp://www.sagepub.com/journalsReprints.navhttp://www.sagepub.com/journalsPermissions.navhttp://joe.sagepub.com/content/23/1/35.refs.htmlhttp://joe.sagepub.com/content/23/1/35.refs.htmlhttp://online.sagepub.com/site/sphelp/vorhelp.xhtmlhttp://online.sagepub.com/site/sphelp/vorhelp.xhtmlhttp://joe.sagepub.com/content/23/1/35.full.pdfhttp://joe.sagepub.com/http://joe.sagepub.com/http://joe.sagepub.com/http://joe.sagepub.com/http://joe.sagepub.com/http://joe.sagepub.com/http://online.sagepub.com/site/sphelp/vorhelp.xhtmlhttp://joe.sagepub.com/content/23/1/35.full.pdfhttp://joe.sagepub.com/content/23/1/35.refs.htmlhttp://www.sagepub.com/journalsPermissions.navhttp://www.sagepub.com/journalsReprints.navhttp://joe.sagepub.com/subscriptionshttp://joe.sagepub.com/cgi/alertshttp://www.sagepublications.com/http://joe.sagepub.com/content/23/1/35http://joe.sagepub.com/


2/23

Editors Introduction 35

Article

Earnings of Immigrants:

Does EntrepreneurshipMatter?

Nahikari Irastorza

Iaki Pea

AbstractThe economic integration of immigrants has become a challenging topicin the European political agenda. This is especially true for countriesthat are struggling to survive the economic recession which started in

2008. In this context, entrepreneurship emerges as an alternative tounemployment. While the self-employment propensity of immigrantsis well documented, little is known about the performance of theseventures. This article contributes to the literature by comparing andexplaining the differential earnings of self-employed versus salariedimmigrants in Spain. A binary logistic regression is applied to exploredata collected by the Global Entrepreneurship Monitor project for 2005and 2006. Our findings show that self-employed immigrants incomeexceeds that of salaried workers. Human capital and location-relatedenvironmental variables were found to be the best predictors of bothself-employed and salaried immigrants earnings.

Keywords

immigrants, entrepreneurship, labour market, earnings

The intensification of migration flows and the emergence of a transna-tional economy have led to a growth in immigrant business activity. As aresult, the entrepreneurial activity of immigrants is gaining the attention

The Journal of Entrepreneurship23(1) 3556

2014 EntrepreneurshipDevelopment Institute of India

SAGE PublicationsLos Angeles, London,

New Delhi, Singapore,Washington DC

DOI: 10.1177/0971355713513352http://joe.sagepub.com

Nahikari Irastorza is Marie Curie research fellow at the MIM, MalmUniversity, Malm, Sweden.Iaki Pea is Director, Entrepreneurship Department, Basque Institute ofCompetitiveness, Donostia-San Sebastian, Spain.

at INDIAN INST OF MGMNT on July 10, 2014 joe.sagepub.comDownloaded from
http://joe.sagepub.com/http://joe.sagepub.com/http://joe.sagepub.com/http://joe.sagepub.com/


3/23

36 Nahikari Irastorza and Iaki Pea

The Journal of Entrepreneurship, 23, 1 (2014): 3556

of an increasing number of scholars. Recent findings show that immi-grants are more prone to become entrepreneurs than natives(Hammarstedt, 2001; Irastorza, 2010; Levie, 2007; Schuetze, 2005). Thegreater entrepreneurial propensity of immigrants has been explainedfrom different perspectives. On the one hand, the immigrants decision tocreate firms has been linked to their decision to migrate. In both cases,individuals seek self-realisation while they face an uncertain future, andthey take risks by giving up their status in their country of origin or bystarting up a firm. Thus, immigrants as risk takers are expected to bemore prone to entrepreneurship than natives (Constant, Schachmurove& Zimmermann, 2003). On the other hand, the disadvantage hypothesisstates that entrepreneurship emerges as an alternative to unemploy-ment and a mechanism to overcome difficult labour market barriers formany foreigners (Light, 1979). Furthermore, it has been argued thatentrepreneurial activities become an avenue for the socio-economicadvancement of the disadvantaged (Bauder, 2005; Constant et al., 2003).

While the self-employment propensity of immigrants is well

documented, little is known about what happens to ventures started up by them. Are earnings derived from the new ventures large enough tocompensate for the opportunity cost of being self-employed? Thereseems to be a consensus among scholars that opportunity cost of

becoming entrepreneurs is lower for immigrants than for natives due tothe barriers which prevent immigrants from accessing the local labourmarket. Yet, the immigrant entrepreneurship literature is not conclusivewith regard to the potential greater earnings of self-employed immigrants.

While some researchers claim that earnings from self-employment exceed salaries (Borjas, 1986; Light, 1984), others suggest the opposite(Hammarstedt, 2001; Hjerm, 2004).

We aim to contribute to the extant debate by analysing the factorsexplaining the earnings of self-employed versus salaried immigrants inSpain. The socio-economic advancement hypothesis suggested byConstant et al. (2003) will be tested by examining the effect of entrepre-neurship on the earnings of immigrants. Constant et al. (2003) go beyondthe disadvantage hypothesis when they state that entrepreneurship can beconsidered as an avenue for immigrants upward mobility in the hostcountry. Specifically, we address two research questions: ( i) Is there anysignificant difference between the earnings of self-employed and sala-ried immigrants? ( ii) Are the explanatory factors for earnings similar forself-employed and salaried immigrants?



4/23

Earnings of Immigrants: Does Entrepreneurship Matter? 37


We draw on human capital and spatial economic theories to providean overview of the literature on self-employment and the earnings ofimmigrants. After describing the methodology and the research designapplied in the study, we discuss our key findings. Finally, we present ourmain conclusions and some policy implications.

Self-employment and the Earnings of Immigrants

Entrepreneurship is often conceived as an alternative to overcome thesubstantial labour market barriers faced by immigrants due to their lia-

bility of foreignness (that is, additional barriers, such as, poor languageskills, lack of work experience and human capital attributes required inthe host country, as well as discrimination). Nevertheless, the effective-ness of self-employment as a means to facilitate immigrants economicintegration is controversial. Whereas some empirical studies show a

positive relationship between self-employment and the earnings ofimmigrants, other authors remain skeptical. Studies carried out inGermany and the US show that the earnings of self-employed immi-grants are greater than those of salaried immigrants (Borjas, 1986;Constant et al., 2003). In contrast, empirical studies carried out inSweden point to the opposite (Hammarstedt, 2001; Hjerm, 2004).

We believe that differences in the welfare state system and the attitudetowards discrimination across countries may influence the earnings ofself-employed and salaried immigrants. This study was conducted inSpain, where salaried immigrants often work in worse conditionsthan natives. The cited additional difficulties faced by immigrantsin a foreign country slow down their incorporation into the labourmarket. Considering these trends, we expect self-employment to improveimmigrants earnings.

Furthermore, we believe that earning differences may depend on the

motivation of individuals to start up firms. Empirical studies suggest thatmotivation influences business survival and growth, opportunity-driven entrepreneurs being more likely to achieve business successthan necessity-driven entrepreneurs (Arias, Carvajal & Pea, 2004). Thisis often explained by the greater opportunity cost usually faced byopportunity-driven entrepreneurs who fetch greater earnings.



5/23



Hypothesis 1a: Self-employed immigrants are likely to earn more thansalaried immigrants.

Hypothesis 1b: Opportunity-driven immigrant entrepreneurs are likelyto earn more than their necessity-driven counterparts.

The literature on immigrant entrepreneurship has analysed humancapital, socio-demographic, cultural and industry sector related factors,and environmental factors as predictors of entrepreneurial earnings. We

believe that these factors can be grouped according to the taxonomysuggested by Bearse (1982) and Wagner and Sternberg (2004) toanalyse the determinants of firm creation. We thus differentiate twomajor sets of factors to compare self-employed and salaried immigrantsearnings: individual-related and context-related factors. We considerhuman capital endowment and socio-demographic characteristics asindividual-related factors, and industry sector and location variablesas context-related factors in the host society.

Individual-related Factors

Conventional wisdom suggests that human capital attributes influencethe economic performance of individuals. A high level of education,work experience, the number of years in the host country and good host-language proficiency are human capital factors that increase the odds ofhigh earnings for both self-employed and salaried immigrants. Whilesome authors found a positive relationship between high qualificationsand high earnings among entrepreneur and non-entrepreneur immi-grants (Clark & Drinkwater, 1998; Dvila & Mora, 2004; Hjerm, 2004),others did not find education to be significant (Constant et al., 2003;Hammarstedt, 2004). Older individuals are expected to accumulateknowledge, valuable experience and the financial means to launch new

ventures. The literature on entrepreneurship shows that older entrepre-neurs perform better than their counterparts (Constant & Zimmerman,2004; Cooper, Dunkelberg & Woo 1989; Stuart & Abetti, 1990). Bothself-employed and salaried immigrants are expected to obtain a higherincome level as they accumulate experience. With rare exceptions,experience correlates positively with age.



6/23



Socio-demographic factors, such as, gender, marital status and placeof birth, are also found to be predictors of earnings derived from entre-

preneurial activities and salaries of immigrants. The place of origin ofimmigrants and the ethnicity of non-migrant ethnic groups have beenrelated to their earnings. As shown by Hammarstedt (2001), the profileof immigrants coming from one specific country may differ dependingon the time period at which immigrants leave their country. Similarly, the

profile of immigrants varies across countries for the same period oftime. Moreover, several empirical studies show intergroup differences

between salaried immigrants earnings and immigrant entrepreneurs(Borjas, 1986; Butler & Herring, 1991; Hammarstedt, 2001; Hjerm,2004). Although no unique pattern explains the income distribution ofdifferent ethnic groups, these studies suggest that immigrants fromsocio-economically advanced countries earn more than those from socio-economically less advanced countries. In this case, immigrants from

North America and Europe who have a satisfactory level of livingstandard in their own countries are expected to maintain or improve on

their income levels when they move to Spain. Additionally, we believethat North Americans and Europeans are both culturally and institution-ally closer to one another than to Asians or Africans, and we expect thatthese immigrants increased familiarity with the host system will alsotranslate into better economic performance.

Hypothesis 2a: Factors enriching the human capital of individuals (thatis, education and experience) are positively associated with immigrantsearnings.

Hypothesis 2b: Immigrants from socio-economically advanced regionsare likely to earn more than immigrants from less advanced countries.

Context-related Factors

Wages vary across industry sectors and regions in Spain. Similarly,entrepreneurs earnings are expected to differ depending on the type of

business activity and the location of the venture. Hence, we must takeinto account the effect of the context on the income level of both immi-grant entrepreneurs and others. Context-related factors selected for our

http://joe.sagepub.com/http://joe.sagepub.com/http://joe.sagepub.com/


7/23



analysis relate to the industry sector, the location of companies and themacroeconomic characteristics of each Spanish region.

Constant and Zimmerman (2004) found that working in the construc-tion and banking sectors has a positive effect on the income of bothimmigrant entrepreneurs and salaried immigrants. Clark and Drinkwater(1998) also found that operating in the construction sector increases theincome of the self-employed. In addition, the Salary-structure surveycarried out by the Spanish Statistical Institute reports that the meanincome for both native Spanish and immigrants in manufacturing is

greater than that in other industry sectors (Instituto Nacional deEstadstica, 2002). Accordingly, we expect that industry sectors willinfluence the earnings of immigrants, with those who work in manufac-turing and construction (that is, transforming industries) being at anadvantage. Due to data limitations, this variable will be tested only forself-employed immigrants.

Firm location may also influence the earnings of both self-employedand salaried immigrants. Immigrant entrepreneurs often prefer to startup their firms in metropolitan areas due to the high density of the

populationwhich should guarantee a greater demand for goods andservicesand the agglomeration economies arising in a concentratedlocation. The literature on immigrant entrepreneurship shows thatforeign-owned firms located in metropolitan areas perform better thanthose located in rural areas (Hammarstedt, 2004; Razin, 1999). Razin(1999) explains this state of affairs by arguing that immigrants concen-

trate in metropolitan areas, where the opportunity for the formation ofethnic niches is greater. The self-employed who work in these niches,where the demand for goods is greater, obtain greater earnings than doco-ethnics outside the niche areas. Other empirical studies (Clark &Drinkwater, 1998; Constant & Zimmerman, 2004) show that unemploy-ment influences the income of both self-employed and salaried workers.We believe that the regional GDP per capita may also work as a good

predictor of the earnings of self-employed and salaried immigrants: it isreasonable to assume that immigrants who live in regions where theGDP per capita is above average will be more likely to earn more, ceteris

paribus. In addition, we expect that living in urban areas will have a posi-tive influence on the earnings of immigrants due to the greater demandand the greater number of employment opportunities therein.



8/23



Hypothesis 3a: Self-employed immigrants operating in transformingindustry sectors are likely to earn more than their counterparts.

Hypothesis 3b: Immigrants working in wealthier regions and in metropolitan areas are likely to earn more than their counterparts.

Method

Regional data from the Global Entrepreneurship Monitor (GEM) projectwere used to conduct the empirical tests. More than 40 countries cur-rently participate in the GEM project. The data used in this study werecollected for 17 Spanish regions in 2005 and 2006. Of the 47,000 indi-viduals interviewed in the survey, 2,100 were immigrants who lived inSpain. Of the latter, 20 per cent were self-employed, 51 per cent weresalaried and the remainder were unemployed.

According to the Annual Immigration Report 2006 published by the

Spanish government, 8 per cent of foreigners are self-employed and 56 percent are salaried. While the proportion of salaried immigrants is similar tothat of the GEM project, the percentage of self-employed immigrants ofthe GEM data is twice as large as that of the official Spanish data. Here wehave to bear in mind that the variable immigrant in GEM is built upon thequestion In which country were you born?, and, thus, all the respondents

born abroad are codified as immigrants. In the official Spanish statistics, onthe other hand, the variable foreigner refers to nationality and distinguishes

between Spaniards and foreigners; hence, immigrants with Spanishcitizenship would be classified as Spaniards. Since the acquisition ofknowledge and experience necessary to start up a business requires time,as does the acquisition of citizenship, it is likely that many self-employedimmigrants are already Spanish citizens and reported as Spaniards in thegovernment data. We believe that this could in part explain the discrepancy

between official Spanish data and data collected by GEM with regard toself-employed immigrants. Leaving aside this observation, we believe thatwe obtained a representative sample of immigrants living in Spain.

In order to compare the earnings of self-employed and salariedimmigrants, we use a dependent dummy variable, HighIncome , whichrepresents the distribution of the monthly earnings of immigrants. Thisvariable was created by recoding an initial variable, Monthly Rents , built



9/23



upon self-reported answers to a question on the monthly income level fall-ing into one of the five categories (2,400 ). The new variable distinguishes betweentwo income categories: a value of 0 is given to earnings situated between0 and 1,200 (below average) and a value of 1 is given to earningsgreater than 1,200 (above average). We selected this cutting point

because, according to the latest Salary-structure survey carried out bythe Spanish Statistical Institute, the Spanish monthly net salary was

1,213.18 in 2006, when our data was collected (Instituto Nacional de

Estadstica, 2008). Thus, this dichotomic variable distinguishes betweenimmigrants with above-average and below-average earnings.The independent variables used to predict the income distribution of

self-employed and salaried immigrants correspond to the theoreticalframework discussed in the literature and include both individual-relatedand context-related factors. Some independent variables were coded as

binary: human capital and socio-economic variables of the individual,such as, College (where a value of 1 is equal to a college education),

Gender (1 for male) and Self-employed (a value of 1 for self-employed)as shown in Table 2.

Based on the GNI per capita, the World Bank classifies countries intofour groups: low-income, low-middle income, upper-middle income and

Table 1. Characteristics of the Sample

Descriptive Statistics

Self-employedImmigrants Salaried Immigrants

Variable MeanStandarddeviation Mean

Standarddeviation

Initial age 42.62 11.41 42.43 13.02RegGDPcap04 12,252.31 1,786.29 12,834.52 1,938.86

Characteristics of the Sample


Educational level N % N %

College level 203 48 486 45.2Lower level 220 52 589 54.8Total 423 100 1,075 100



10/23



Gender N % N %

Male 208 49.2 485 45.1Female 215 50.8 590 54.9Total 423 100 1,075 100

Origin N % N %

African 26 6.1 56 5.2Asian 18 4.3 20 1.9European 111 26.2 285 26.5North American 18 4.3 16 1.5South American 250 59.1 698 64.9Total 423 100 1,075 100

Strat-up motivation N % N %

Opportunity 96 84.5 Necessity 197 15.5 Total 233 100 Industry sector N % N %

Extractive 7 1.7 Transforming 55 13 Business services 48 11.3 Consumer oriented 92 21.7 Others 221 52.3 Total 423 100

Location N % N %Rural 177 41.8 591 55Urban 246 58.2 484 45Total 423 100 1,075 100

Source: GEM Spain 2005 and 2006.

Characteristics of the Sample


high-income countries. According to data for 2003, North America,Europe (with the exception of a few Eastern countries which belong tothe lower-middle income) and Oceania belong to the latter two groups(The World Bank Group, 2006). Due to data limitations, we selected thevariable continent to describe the origin of immigrants. Thus, the placeof origin of immigrants is described as follows: African, European,

North American and South American, for which a value of 1 is assigned



11/23



to people who were born in each of the respective world regions. Asianimmigrants are left as the base case. Since the Oceanian group is notlarge enough to be introduced in the analysis, socio-economicallyadvanced countries of our database will be represented by the variables

North American and European . Finally, the quantitative variable age stands for the exact age of respondents.

In our analysis context-related variables represent industry sectorsand location. Industry sectors are Extractive, Transforming, Businessand Consumer, for each of which 1 represents people working in thecited industries. The variable Urban takes the value of 1 when respondentslive in areas with more than 5,000 inhabitants. Data on the 17 regions ofSpain were provided by the Spanish Statistical Institute: the variable

RegGDPcap04 represents the GDP per capita of each Spanish region in2004 as shown in Table 2.

Table 1 shows the descriptive statistics and characteristics of thetwo samples. The most significant differences among these groups arethe following: The percentage of female individuals and that with col-

lege education is higher among self-employed immigrants than amongthe salaried. The presence of Asian and North American people ismore important among the self-employed, whereas salaried workers aremore abundant among South Americans. Finally, the self-employedconcentrate more in urban areas and in regions where the per capita rentis slightly lower than the salaried do. The majority of immigrants start up

because they detect a good business opportunity and operate mainly inconsumer-oriented and business services.

Two statistical methods were applied to answer our research ques-tions. First, we selected a sample involving the whole population ofimmigrants and applied a Chi-square test in order to find whether beingself-employed is significantly correlated with immigrants income(research question #1). A preliminary test showed that there were signifi-cant differences between the earnings of self-employed versus salariedimmigrants. Second, we split the initial sample into two sub-samples(self-employed and salaried immigrants), and ran a binary logisticregression analysis on both in order to compare the earning-determinantsfor self-employed and salaried immigrants (research question #2). The

binary logistic regression method estimates the probability of an eventhappening, in this case, the probability of immigrant earnings beingabove average. Correlation analyses are shown in Table 3.



12/23

T a

b l e 2

. D e s c r i p t

i o n o

f V a r

i a b l e s

N a m e

D e f

i n i t i o n

S o u r c e

S E L F

- E M P L O Y E D

D u m m y v a r i a b

l e w

h i c h

d i s t i n g u i s h e s

b e t w e e n

s e l f - e m p l o y e

d ( v a l u e =

1 ) a n

d s a

l a r i e d

( v a l u e =

0 )

i n d i v i d u a l s

G E M

S p a i n :

R e g i o n a l

a g g r e g a t e

d d a t a b a s e s o

f

2 0 0 5 a n

d 2 0 0 6

C O L L E G E


l e w

h i c h


b e t w e e n

p e o p

l e w

i t h c o

l l e g e e

d u c a t

i o n

( v a l u e =

1 ) a n

d

l o v e r e d u c a t i o n

( v a l u e =

0 ) i n d i v i d u a l s

G E M

S p a i n :

R e g i o n a l

a g g r e g a t e


f

2 0 0 5 a n

d 2 0 0 6

A G E

C o n t i n u o u s v a r i a b

l e w

h i c h

i n d i c a t e s t h e a g e o

f

i n d i v i d u a l s a t t h e m o m e n t o

f t h e

i n t e r v

i e w

G E M

S p a i n :

R e g i o n a l

a g g r e g a t e


f

2 0 0 5 a n

d 2 0 0 6

G E N D E R


l e w

h i c h


b e t w e e n m a l e

( v a l u e =

1 ) a n

d f e m a

l e ( v a l u e =

0 ) i n d i v i d u a

l s

G E M

S p a i n :

R e g i o n a l

a g g r e g a t e


f

2 0 0 5 a n

d 2 0 0 6

H I G H I N C O M E


l e w

h i c h


b e t w e e n

i n d i v i d u a l s w

h o e a r n a n

i n c o m e

h i g h e r t h a n

1 , 2 0 0

e u r o s / m o n t

h ( v a l u e =

1 ) a n

d i n d i v i d u a

l s w

h o e a r n

a l o w e r

i n c o m e

( v a l u e =

0 )

G E M

S p a i n :

R e g i o n a l

a g g r e g a t e


f

2 0 0 5 a n

d 2 0 0 6

A F R I C A


l e w

h i c h


b e t w e e n


b o r n

i n A f r i c a n c o u n t r i e s

( v a l u e =

1 )

a n d i n d i v i d u a

l s b o r n e l s e w

h e r e

( v a l u e =

0 )

G E M

S p a i n :

R e g i o n a l

a g g r e g a t e


f

2 0 0 5 a n

d 2 0 0 6

E U R O P E


l e w

h i c h


b e t w e e n


b o r n

i n E u r o p e a n c o u n t r

i e s

( v a l u e =

1 )

a n d i n d i v i d u a


h e r e

( v a l u e =

0 )

G E M

S p a i n :

R e g i o n a l

a g g r e g a t e


f

2 0 0 5 a n

d 2 0 0 6

N A M E R


l e w

h i c h


b e t w e e n


b o r n

i n N o r t

h A m e r

i c a n c o u n t r i e s

( v a l u e =

1 ) a n

d i n d i v i d u a


h e r e

( v a l u e =

0 )

G E M

S p a i n :

R e g i o n a l

a g g r e g a t e


f

2 0 0 5 a n

d 2 0 0 6

( T a

b l e 2 c o n t i n u e

d )



13/23

N a m e

D e f

i n i t i o n

S o u r c e

S A M E R


l e w

h i c h


b e t w e e n


b o r n

i n S o u t

h A m e r

i c a n c o u n t r

i e s ( v a l u e

= 1 ) a n

d i n d i v i d u a l s b o r n e l s e w

h e r e

( v a l u e = 0

)

G E M

S p a i n :

R e g i o n a l

a g g r e g a t e


f

2 0 0 5 a n

d 2 0 0 6

T E A m o t i v e


l e w

h i c h


b e t w e e n

o p p o r t u n

i t y -

d r i v e n ( v a

l u e =

1 ) a n

d n e c e s s i t y -

d r i v e n

( v a l u e =

0 ) e n t r e p r e n e u r s

G E M

S p a i n :

R e g i o n a l

a g g r e g a t e


f

2 0 0 5 a n

d 2 0 0 6

E X T R A C T I V E


l e w

h i c h


b e t w e e n

e n t r e p r e n e u r s o p e r a t i n g

i n e x t r a c t i v e

i n d u s t r i e s

( v a l u e =

1 ) a n

d t h o s e

w o r k

i n g

i n o t h e r s e c t o r s

( v a l u e =

0 )

G E M

S p a i n :

R e g i o n a l

a g g r e g a t e


f

2 0 0 5 a n

d 2 0 0 6

T R A N S F O R M I N G


l e w

h i c h


b e t w e e n


i n t r a n s f o r m

i n g

i n d u s t r

i e s

( v a l u e =

1 ) a n

d t h o s e

w o r k

i n g


( v a l u e =

0 )

G E M

S p a i n :

R e g i o n a l

a g g r e g a t e


f

2 0 0 5 a n

d 2 0 0 6

B U S I N E S S


l e w

h i c h


b e t w e e n


i n b u s

i n e s s s e r v

i c e s ( v a

l u e

= 1 ) a n

d t h o s e w o r k

i n g


( v a l u e =

0 ) G E M

S p a i n :

R e g i o n a l

a g g r e g a t e


f

2 0 0 5 a n

d 2 0 0 6

C O N S U M E R


l e w

h i c h


b e t w e e n


i n c o n s u m e r - o

r i e n t e

d

s e r v

i c e s

( v a l u e =

1 ) a n d t h o s e w o r k

i n g

i n o t h e r

s e c t o r s

( v a l u e =

0 )

G E M

S p a i n :

R e g i o n a l

a g g r e g a t e


f

2 0 0 5 a n

d 2 0 0 6

U R B A N


l e w

h i c h d i s t

i n g u

i s h e s

b e t w e e n

i n d i v i

d u a

l s w

h o l i v e i n

a n a r e a w

i t h m o r e t h a n

5 , 0 0 0 i n h a b i t a n t s

( v a l u e =

1 ) a n

d t h o s e w

h o l i v e

i n a n

a r e a w

i t h a

l o w e r n u m

b e r o

f i n h a b i t a n t s

( v a l u e =

0 )

G E M

S p a i n :

R e g i o n a l

a g g r e g a t e


f

2 0 0 5 a n

d 2 0 0 6

R e g

G D P c a p 0

4

C o n t i n u o u s v a r i a b

l e w

h i c h

d e s c r

i b e s t h e r e g i o n a

l

G D P p e r c a p

i t a

i n 2 0 0 4

S p a n

i s h N a t

i o n a l

S t a t

i s t i c s

I n s t

i t u t e

( I N E )

S o u r c e :

G E M

S p a

i n 2 0 0 5 a n

d 2 0 0 6

.

( T a

b l e 2 c o n t i n u e d

)



14/23

T a

b l e 3

. C o r r e l a t

i o n

M a t r i x :

S e l

f - e m p l o y e

d I m m

i g r a n t s

1

1

2

3

4

5

6

7

8

9

1 0

1 1

1 2

1 3

C o

l l e g e

A g e

0

. 1 5 2 ( * * )

G e n

d e r

0 . 0

3 0

0

. 0 4 3

T E A m o t i v e

0

. 0 2 0

0

. 0 3 7

0 . 0

5 7

A f r i c a n

0 . 0 5 0

0 . 0

0 3

0

. 0 3 5

0

. 0 5 1

E u r o p e a n

0 . 0 8 3

0

. 0 2 7

0 . 0

4 7

0 . 1

2 9 ( * )

0

. 1 5 3 ( * * )

N o r t

h

A m e r

i c a n

0

. 0 6 2

0 . 0

4 2

0

. 0 2 0

0

. 0 9 9

0

. 0 5 4

0

. 1 2 6 ( * * )

S o u t h

A m e r

i c a n

0

. 1 0 6 ( * )

0 . 0

1 5

0

. 0 2 8

0

. 0 5 0

0

. 3 0 8 ( * * )

0

. 7 1 7 ( * * )

0

. 2 5 3 ( * * )

E x t r a c t

i v e

0

. 0 5 0

0 . 0

5 6

0

. 1 2 8 ( * * )

0 . 0 0 6

0

. 0 3 3

0

. 0 3 5

0 . 0 6 4

0 . 0

0 3 3

T r a n s f o r m

i n g

0 . 0

2 0

0 . 0

0 3

0 . 0

5 6

0

. 0 1 8

0

. 0 1 1

0

. 0 3 9

0 . 0 2 3

0 . 0

0 2 1

0 . 0

5 0

B u s

i n e s s

s e r v

i c e s

0 . 0 4 4

0 . 0

6 0

0 . 1

4 0 ( * * )

0 . 0 3 7

0

. 0 2 9

0

. 0 4 4

0 . 0 3 5

0 . 0

5 5

0

. 0

4 6

0

. 1 3 8 ( * * )

C o n s u m e r

o r i e n t e

d

0

. 0 2 5

0

. 0 7 1

0

. 0 3 7

0

. 0 0 2

0 . 0 0 8

0 . 0 5 0

0

. 0 8 3

0

. 0 6 3

0

. 0

6 8

0

. 2 0 4 ( * * )

0

. 1 8 9 ( * * )

U r b a n

0

. 0 2 0

0 . 0

4 5

0 . 0

5 8

0 . 0 8 7

0 . 0 1 8

0 . 0 1 6

0

. 1 0 6 ( * )

0 . 0

3 5

0 . 0 7 2

0 . 1

0 0 ( * )

0 . 0

4 7

0

. 0 4 1

R e g

i o n a l

P C R e n t

2 0 0 4

0 . 1

3 0 ( * * )

0 . 0

2 9

0 . 0

2 5

0

. 0 3 5

0

. 0 1 3

0 . 0 4 2

0

. 0 1 4

0

. 0 0 5

0 . 0 2 2

0

. 0 2 5

0

. 0 8 0

0

. 0 9 4

0

. 0 5 3

( T a

b l e 3 c o n t i n u e

d )



15/23

C

o r r e l a t

i o n

M a t r i x :

S a l a r i e d

I m m

i g r a n t s

1

2

3

4

5

6

7

8

C o

l l e g e

A g e

0

. 1 7 8 ( * * )

G e n

d e r

0 . 0 5 2

0

. 0 0 8

A f r i c a n

0

. 0 5 3

0 . 0 3 2

0

. 0 1 1

E u r o p e a n

0 . 0 0 5

0

. 0 4 3

0 . 0 0 2

0

. 1 4 1 ( * * )

N o r t

h A m e r

i c a n

0 . 0 4 3

0

. 0 3 8

0

. 0 1 9

0

. 0 2 9

0

. 0 7 4 ( * )

S o u t

h A m e r

i c a n

0 . 0 2 1

0 . 0 4 2

0 . 0 2 8

0

. 3 1 9 ( * * )

0

. 8 1 7 ( * * )

0

. 1 6 7 ( * * )

U r b a n

0

. 0 0 7

0 . 0 3 1

0

. 0 5 8

0

. 0 0 2

0 . 0

0 3

0 . 0

1 2

0

. 0 1 3

R e g

i o n a

l P C R e n t

2 0 0 4

0 . 0

7 0 ( * )

0 . 0 1 2

0 . 0

8 3 ( * * )

0 . 0 2 5

0

. 0 3 9

0

. 0 1 6

0 . 0

2 8

0 . 1

1 2 ( * * )

S o u r c e :

G E M

S p a

i n 2 0 0 5 a n

d 2 0 0 6

.

N o

t e s :

( * * ) S i g

n i f i

c a n t a t

0 . 0

1 l e

v e

l ; (

* ) S i g

n i f i

c a n t a t

0 . 0

5 l e

v e

l .

1 . A

d d i t i o n a

l l y ,

S p e a r m a n c o r r e l a t

i o n

a n a l y s e s w e r e r u n t o t e s t t

h e c o r r e l a t

i o n

b e t w e e n

b i n a r y v a r i a b

l e s .

R e s u l t s w e r e s i m

i l a r t o

t h o s e o

b t a

i n e d

f r o m

P e a r s o n c o r r e l a t

i o n a n a l y s e s .

( T a

b l e 3 c o n t i n u e d

)



16/23



Findings

The Chi-square test indicates that there are significant differences in theincome distribution between entrepreneurial and salaried immigrants(research question #1). The income distribution of self-employed andsalaried immigrants is shown in Table 4, where the percentage of self-employed immigrants is slightly superior for the highest income levels(that is, 30.7 per cent of self-employed immigrants earn more than1,800 per month, while only 25.9 per cent of salaried immigrants do).This finding confirms Hypothesis 1a and supports previous findings byBorjas (1986), Butler and Herring (1991) and Constant et al. (2003).

Next, we aimed to identify and compare the factors influencingthe earnings of self-employed and salaried immigrants. The results of the

binomial logistic regression analysis show that the factors explainingthe earnings of self-employed and salaried immigrants are quite similar.

Nevertheless, a few differences pertaining to the location and the humancapital endowments of immigrants should be noted.

The effect of individual- and context-related factors on the probabil-ity of greater immigrants earnings is tested in model 1, as shown inTable 5. Having a college education was found to have a positive effecton the earnings of self-employed and salaried immigrants, whereas agewas not a significant factor. Better educated individuals are supposedto have more skills to run a business, which in turn should have a

positive influence on their incomes. This finding partially confirmsHypothesis 2a for both self-employed and salaried immigrants and

Table 4. Chi-square Test for Self-employment by Income, All Immigrants

Work Type

Salaried Self-employed

M o n t h

l y i n c o m e < de 600 47 (5.8%) 26 (7.7%)

6001,200 269 (33.4%) 105 (31.0%)1,2001,800 281 (34.9%) 104 (30.7%)1,8002,400 109 (13.5%) 67 (19.8%)> de 2,400 100 (12.4%) 37 (10.9%)Total 806 (100%) 339 (100%)

x = 9.41 with p value = 0.05Source: GEM Spain 2005 and 2006.



17/23



Table 5. Binomial Logistic Regression Analysis

Self-employedImmigrants SalariedImmigrants

Model 1 Model 2 Model 3 Model 4 Model 1 Model 2

B B B B B B

Individual-relatedfactors

Human capitalvariablesCollege 1.53() 1.42 1.51() 1.48() 0.86() 0.22Afr*College 3.20(**) 0.17Eu*College 3.20() 0.74NA*College 21.37 1.63SA*College 3.30() 0.67Age 0.02 0.03 0.03 0.02 0.00 0.02

Afr*Age 0.01 0.02Eu*Age 0.02 0.02NA*Age 0.01 0.01SA*Age 0.01 0.02

Socio-demographicvariablesGender 0.58 0.61(*) 0.60(*) 0.24 0.00 1.63Afr*Gender 19.99 1.08Eu*Gender 0.42 1.68NA*Gender 0.17 2.74SA*Gender 0.33 1.69African 0.23 0.44European 1.03 0.57NAmerican 0.46 0.20SAmerican 0.65 0.41

MotivationTEAmotive 1.36() 1.48() 1.39(**) 1.19(**)



18/23



Self-employedImmigrants

SalariedImmigrants

Model 1 Model 2 Model 3 Model 4 Model 1 Model 2

B B B B B B

Context-relatedfactors

Industry

sector-related contextExtractive 0.43 0.40 0.48 0.39Transforming 0.50 0.53 0.50 0.49Businessservices

0.07 0.07 0.05 0.01

Consumeroriented

0.26 0.18 0.31 0.21

Environment-related contextUrban 0.69(*) 0.78(**) 0.69(*) 0.64(*) 0.30(**) 0.31(**)RegGDPcap04 0.00() 0.01() 0.01() 0.01() 0.00(**) 0.01(**)

Constant 5.35() 6.697 6.12() 5.41() 1.58(**) 1.15N 188 188 188 188 806 806Chi2 38.67() 48.71() 38.78() 37.52() 48.54() 55.03()

R Nagelkerke 0.25 0.31 0.25 0.24 0.08 0.09Source: GEM Spain 2005 and 2006.Notes: () Significant at 0.01 level; (**) significant at 0.05 level; (*) significant at 0.1 level.

supports previous studies by Clark and Drinkwater (1998), Dvila andMora (2004) and Hjerm (2004). Socio-demographic variables relatedto the origin of individuals were not significant predictors of self-employed and salaried immigrants earnings, and, thus, Hypothesis 3a isnot supported for these subsamples.

A few variables related to industry sectors and the motivation tostart up was added to the base model for self-employed immigrants.Unexpectedly, necessity-driven entrepreneurs were more likely to havean above-average income than opportunity-driven entrepreneurs. Thehigh risk usually involved in opportunity-driven ventures may indeed



19/23



result in more business failures and, thus, explain this finding. Hence,Hypothesis 1b is rejected for self-employed immigrants.

Environmental variables were found to be significant for both self-employed and salaried immigrants. The earnings of self-employed andsalaried immigrants living in wealthier regions are more likely to beabove average than their counterparts. Nevertheless, whereas living in anurban area increases the probability of greater income for salariedimmigrants, the opposite was found for self-employed immigrants. Thenegative effect of living in urban areas on the income of the self-

employed may be explained by the high cost of urban commercial premises that leave a smaller profit margin to entrepreneurs and by ahigher level of competition. In sum, Hypothesis 3b is completelysupported for salaried immigrants and only partially for the self-employed. None of the industry-related variables are significant andthus, Hypothesis 3a is not supported for immigrant entrepreneurs.

In short, self-employed immigrants who fill one of the followingconditions, namely, holding a college degree, being necessity-driven or

living either in rural areas or wealthier regions, are expected to reapabove-average earnings. On the other hand, the income of salariedimmigrants who have a college education or live either in urban areas orin wealthier regions is likely to be greater than for other salariedimmigrants.

Additional models included interaction variables in order to capturethe joint effect of the origin of individuals and human capital variables.Due to the modest number of observations for self-employed immigrantindividuals in our database, we ran three regression analyses to includeinteraction variables combining educational level, age and gender withthe immigrants origin (models 2, 3 and 4). As shown in Table 5, theeffect of interaction variables was stronger for self-employed than forsalaried immigrants. On the one hand, we found that the earnings ofhighly educated, self-employed Africans, Europeans and SouthAmericans were more likely to be above average than those of their

counterparts. On the other hand, our findings show that, while beingmale increased the probability of above-average earnings from self-employment in models 2 and 3, none of the interaction variablescombining the origin, age and gender of individuals were significant.



20/23



Conclusion

In this article we examined the earnings of self-employed and salariedimmigrants in Spain. Based on human capital and spatial economic theo-ries, we suggested a multidimensional theoretical framework whichinvolves individual- and context-related factors to analyse the effect ofself-employment on the earnings of immigrants. We found support forthe socio-economic advancement hypothesis proposed by Constant et al.(2003) since earnings of immigrant entrepreneurs were slightly greaterthan those of salaried immigrants.

Human capital variables, such as education levels, and environmentalvariables related to the location of individuals and firms were found to bethe most significant predictors of both self-employed and salaried immi-grants earnings. Unexpectedly, entrepreneurs earnings were greater inrural than in urban areas. Future entrepreneurs should bear this in mindwhen they seek the most appropriate location to start up firms. Whileinteraction variables, which combine educational level and origin of

individuals, influence entrepreneurial immigrants earnings, they do notexplain those of salaried immigrants.

The results reported in this article should be interpreted with caution. Not only is the predictive power of our models limited, but also the sample size for the immigrant entrepreneurs group is modest. Due to theabsence of variables regarding, for example, the number of hoursworked, we could not assess the opportunity cost of self-employment.Despite these caveats, we believe that our results are reliable enough toshed some light on the factors explaining immigrants earnings.

Policy makers should be aware of the increasing significance of theentrepreneurial activity of immigrants in Spain. This article providesempirical evidence for slightly greater gains in immigrant earningsderived from self-employment than from salaried employment. Variousfactors may cause this gap. On the one hand, salaried immigrants mayface more obstacles in the labour market than native workers. Empirical

studies show that, other things being equal, and depending on the indus-try sector, male immigrants earn between 7.2 per cent and 16.3 per centless than native men (Martn, 2006). On the other hand, apart from thetraditional low-skilled and labour-intensive activities referred to in theimmigrant entrepreneurship literature, immigrants may be creating



21/23



innovative and profitable businesses and, thus, earning more. We believethat public institutions should offer tailored responses to improve theeconomic integration of immigrants in Spain depending on the situationsdescribed above. First, policy makers should analyse and combat thediscrimination salaried immigrants may suffer in the labour market.Second, immigrants should seriously be taken into account as animportant target group for the promotion of entrepreneurship.

Further in-depth analysis of this topic requires more data, such as, theinnovation activities and the technological level of firms, growth

strategies and the initial financial capital of immigrant entrepreneurs.The labour market situation and the earnings of immigrants may varyaccording to the regulatory frameworks and the development of thewelfare state of various countries. A cross-country comparison wouldallow an assessment of the effect of diverse social and institutionalenvironments on the economic integration of immigrants. Finally, theapplication of qualitative techniques such as in-depth interviews wouldallow the assessment of the efficiency of self-employment as a tool for a

better social integration in host societies.

ReferencesArias, A., Carvajal, P., & Pea, I. (2004). Necessity versus opportunity-

driven entrepreneurs: Evidence from Ecuador and Spain. Frontiersof Entrepreneurship Research (Proceedings of the Babson KauffmanEntrepreneurship Research Conference). Retrieved from http://fusionmx.

babson.edu/entrep/fer/fer_2004/web-content/Section%20XIII/S2/XIII-S2.html (accessed on 31 July 2013).

Bauder, H. (2005). Immigrants attitudes towards self-employment: Thesignificance of ethnic origin, rural and urban background and labourmarket context (Metropolis British Columbia Working Paper No. 0513).Retrieved from http://mbc.metropolis.net/assets/uploads/files/wp/2005/WP05-13.pdf (accessed on 31 July 2013).

Bearse, P.J. (1982). A study of entrepreneurship by region and SMSA size.In K. Vesper (Ed.), Frontiers of entrepreneurship research (pp. 78112).

Wellesley, MA: Babson College.Borjas, B.G. (1986). The self-employment experience of immigrants. The

Journal of Human Resources , 21(4), 485506.Butler, S.B., & Herring, C. (1991). Ethnicity and entrepreneurship in America:

Toward an explanation of racial and ethnic group variations in self-employment. Sociological Perspectives , 34(1), 7994.



22/23



Clark, K., & Drinkwater, S. (1998). Pushed out or pulled in? Self-employmentamong ethnic minorities in England and Wales. Retrieved from http://www.

ciln.mcmaster.ca/papers/seconf/pushed.pdf (accessed on 31 July 2013).Constant, A., & Zimmerman, K.F. (2004). The making of entrepreneurs in

Germany: Are native men and immigrants alike? IZA Working Paper No.1440. Retrieved from http://ftp.iza.org/dp1440.pdf (accessed on 31 July2013).

Constant, E., Schachmurove, Y., & Zimmermann, K.F. (2003). What makesan entrepreneur and does it pay? Native men, Turks and other migrants inGermany . IZA Working Paper No. 940. Retrieved from http://ftp.iza.org/

dp940.pdf (accessed on 31 July 2013).Cooper, A.C., Dunkelberg, W.C., & Woo, C.Y. (1989). Entrepreneurship and theinitial size of firms. Journal of Business Venturing , 4(5), 317332.

Dvila, A., & Mora, M.T. (2004). English-language skills and the earnings ofself-employed immigrants in the U.S.: A note. Industrial Relations , 43(2),386391.

Hammarstedt, M. (2001). Immigrant self-employment in Swedenitsvariation and some possible determinants. Entrepreneurship and Regional

Development , 13(2), 147161. . (2004). Self-employment among immigrants in SwedenAn

analysis of intragroup differences. Small Business Economics , 23(2),115126.

. (2006). The predicted earnings differential and immigrant self-employment in Sweden. Applied Economics , 38(6), 619630.

Hjerm, M. (2004). Immigrant entrepreneurship in the Swedish welfare state.Sociology , 38(4), 739756.

Instituto Nacional de Estadstica. (2008). Encuesta de estructura salarial. Ao

2006. Retrieved from http://www.ine.es/jaxi/menu.do?type=pcaxis&path=/t22/p133/a2006/&file=pcaxis (accessed on 31 July 2013).

Irastorza, N. (2010) Born entrepreneurs? Immigrant self-employment in Spain. Amsterdam: Amsterdam University Press.

Levie, J. (2007). Immigration, in-migration, ethnicity and entrepreneurship inthe United Kingdom. Small Business Economics , 28(2), 143169.

Light, I. (1979). Disadvantage minorities in self-employment, International. Journal of Comparative Sociology , 20(12), 3145.

. (1984). Immigrant and ethnic enterprise in North America. Ethnic and Racial Studies , 7 (2), 195216.

Martn, C. (2006). Una comparacin entre el salario de los trabajadores espaolesy extranjeros. Revista del Ministerio de Trabajo y Asuntos Sociales , 61,6176. Retrieved from http://www.empleo.gob.es/es/publica/pub_electronicas/destacadas/revista/numeros/61/Est3.pdf (accessed on 31 July 2013).



23/23


Razin, E. (1999). Immigrant entrepreneurs and the urban milieu: Evidence fromthe U.S., Canada and Israel . Metropolis British Columbia Working Paper

No. 991. Retrieved from http://mbc.metropolis.net/assets/uploads/files/wp/1999/WP99-01.pdf (accessed on 31 July 2013).

Schuetze, H.J. (2005). The self-employment experience of immigrants toCanada. Retrieved from http://web.uvic.ca/~hschuetz/immigse3.pdf (accessedon 31 July 2013).

Stuart, R.W., & Abetti, P.A. (1990). Impact of entrepreneurial and managementexperience on early performance. Journal of Business Venturing , 5(3),151162.

Wagner, J., & Sternberg, R. (2004). Start-up activities, individual characteristicsand the regional milieu: Lessons for entrepreneurship support policies fromGerman micro-data. The Annals of Regional Science , 38 (Spring), 219240.

The World Bank Group. (2006). Income per person. GNI per capita, 2003.Retrieved from http://web.worldbank.org/WBSITE/EXTERNAL/DATASTATISTICS/0,,contentMDK:20435613~menuPK:1545601~pagePK:64133150~piPK:64133175~theSitePK:239419,00.html (accessed on 31 July 2013).

journal of entrepreneurship 2014 irastorza 35 56

Documents