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Read an excerpt of The Immigrant Exodus

CNN’s Ali Velsi interviews Vivek Wadhwa, author of “The Immigrant Exodus: Why America Is Losing the Global Race to Capture Entrepreneurial Talent”, based on his Kauffman Foundation research. Wadhwa is vice president of Academics and Innovation at Singularity University, and was recognized in 2012 as an “Outstanding American by Choice” by the U.S. government.

Meet The Real Job Creators

As I reported in my blog article, “Report: Immigrants Found Half of Top Start-ups”, immigrants are key to startup formation and job creation, but America’s immigration policies are damaging this badly needed innovation engine.

The Kauffman Foundation study from the Kauffman Foundation shows that the number of immigrant entrepreneurs in the United States has fallen slightly, but Wadhwa points out that the drop is especially steep in Silicon Valley, which has attracted the brightest minds from around the world.

  • From 1995 to 2005, immigrants founded 52% of the startups in Silicon Valley.
  • Since 2005, that dropped to 44 percent.

Wadhwa points out to NPR that the main reason is that the U.S. won’t give visas to foreigners who are already here to stay and start companies. He cites research he published in 2007 that documented that there were 1 million skilled immigrants waiting for permanent resident visas and that predicted that they’d start leaving if the immigration system wasn’t fixed:

Well guess what? They’re leaving. That whole process of getting that EB-5 visa, as it’s called, is so cumbersome that it could take a year or longer, and you don’t know if you’re going to get it. By that time your idea is stale. In the technology world, you have to execute fast or you’re out of business.

Among the many hurdles facing immigrant entrepreneurs is the requirement for foreign investors to invest at least $500,000 in an American venture. Is this a realistic expectation?

The graduates of Stanford and Duke University – they don’t have a million dollars lying around. Typically when you do a technology startup, you have $20,000 or $30,000, and you build an Instagram, you build a Facebook. You build companies like this with very low seed capital. There’s no way they can come up with a million dollars upfront.

Case Study:  Fame Express

Background: Anand and Shikha Chhatpar started the company Fame Express that built Facebook apps. Their accomplishments:

  • Filed eight patents.
  • Signed up a million users.
  • Built up a great deal of revenue.
  • Employed American workers.
  • Contributed over a quarter of a million dollars in taxes in the U.S.

Problem: To apply for permanent residency, they were forced to return to India to get their visa adjusted, but the U.S. government wouldn’t let them back.

Result: Now they’re living in India, paying Indian taxes, employing Indian workers.

A Solution: Wadhwa recommends a quick win solution:

If we had a startup visa which allowed any foreigner to start a company here, if after three or four years the company is employing less than five Americans, that person is ineligible for a green card. That would lead to tens of thousands of new startups, possibly hundreds of thousands of startups, which would generate hundreds of thousands, maybe millions of jobs — all for a cost of zero.

Another Solution: The DREAM Act

Another solution would be passage of the DREAM Act, which proposes to create a roadmap to citizenship for immigrants who came to the United States as children. To qualify for citizenship under the DREAM Act, these immigrants must:

  • Have been in the US for more than five years.
  • Have arrived before the age of 16.
  • Meet certain requirements, including finishing high school and completing at least two years of either college or military service.

The DREAM Act is not simply a human rights matter that embodying core American values, but a report by the Center for American Progress and the Partnership for a New American Economy has estimated that passing the DREAM Act would create significant economic gains including  higher wages, new jobs, and increased state and federal government revenues.

The economic boost would come from these young workers’ potential to increase their earnings by 19%, creating increased disposable income that would create a ripple effect throughout the economy. Their increased daily consumption of goods and services would lead businesses to create new positions and hire additional employees to meet rising demand. Among the predicted results of passing the DREAM Act, it would:

  • Add a total of $329 billion to the American economy by 2030.
  • Create 1.4 million new jobs.
  • Bring in a $10 billion federal tax revenue gain.
  • Address increasing concern that the next generation of workers will not be adequately prepared to fill the numerous jobs that demand high-skilled workers.
  • Provide significant relief to states facing budget gaps that may otherwise be forced to incur greater deficits or cut spending in critical areas such as education and social programs.

According to a recent report by the Center on Education and the Workforce at Georgetown University, by the end of this decade, 66% of all jobs are expected to require some post-secondary education. The DREAM Act’s contribution to the workforce would lead to 223,000 more college educated people in our labor force by 2030.

State legislators would obtain significant relief in increased tax revenues. For instance, in 2013 Colorado will face a $148 million budget gap. Passage of the DREAM Act could help narrow that gap by adding $47.2 million in revenue by 2020 from increases in income and business taxes alone. Over time, it would add $5.5 billion to Colorado’s economy by 2030.

Some states are in even more desperate need of the Act. Florida, projected to face a $1 billion budget gap in 2013, would increase its economy by $2.9 billion by 2020 and $21 billion by 2030.

Next Steps

A good start would be for policy makers to read Wadhwa’s research, and the many other research reports that corroborate his findings. The continued politicization of the immigration issue will not only choke off a key economic engine, but cause the government to continue to plow money into old technologies like oil and coal instead of cutting edge technologies where the U.S. can establish itself as a new world leader.

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