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DOI: 10.1177/0971355713513352
2014 23: 35 Journal of Entrepreneurship
Nahikari Irastorza and Iaki Pea
Earnings of Immigrants: Does Entrepreneurship Matter?
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Earnings of Immigrants: Does Entrepreneurship Matter? 49
The Journal of Entrepreneurship, 23, 1 (2014): 3556
Findings
The Chi-square test indicates that there are significant differences in the
income distribution between entrepreneurial and salaried immigrants
(research question #1). The income distribution of self-employed and
salaried 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 than
1,800 per month, while only 25.9 per cent of salaried immigrants do).
This finding confirms Hypothesis 1a and supports previous findings by
Borjas (1986), Butler and Herring (1991) and Constant et al. (2003).
Next, we aimed to identify and compare the factors influencing
the earnings of self-employed and salaried immigrants. The results of the
binomial logistic regression analysis show that the factors explaining
the earnings of self-employed and salaried immigrants are quite similar.
Nevertheless, a few differences pertaining to the location and the human
capital 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 in
Table 5. Having a college education was found to have a positive effect
on the earnings of self-employed and salaried immigrants, whereas age
was not a significant factor. Better educated individuals are supposed
to have more skills to run a business, which in turn should have a
positive influence on their incomes. This finding partially confirms
Hypothesis 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 = 0.05
Source: GEM Spain 2005 and 2006.
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50 Nahikari Irastorza and Iaki Pea
The Journal of Entrepreneurship, 23, 1 (2014): 3556
Table 5. Binomial Logistic Regression Analysis
Self-employed
Immigrants
Salaried
Immigrants
Model 1 Model 2 Model 3 Model 4 Model 1 Model 2
B B B B B B
Individual-
related
factors
Human capital
variables
College 1.53() 1.42 1.51() 1.48() 0.86() 0.22
Afr*College 3.20(**) 0.17
Eu*College 3.20() 0.74
NA*College 21.37 1.63
SA*College 3.30() 0.67
Age 0.02 0.03 0.03 0.02 0.00 0.02
Afr*Age 0.01 0.02
Eu*Age 0.02 0.02
NA*Age 0.01 0.01
SA*Age 0.01 0.02
Socio-
demographic
variables
Gender 0.58 0.61(*) 0.60(*) 0.24 0.00 1.63
Afr*Gender 19.99 1.08
Eu*Gender 0.42 1.68
NA*Gender 0.17 2.74
SA*Gender 0.33 1.69
African 0.23 0.44
European 1.03 0.57
NAmerican 0.46 0.20
SAmerican 0.65 0.41
Motivation
TEAmotive 1.36() 1.48() 1.39(**) 1.19(**)
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Earnings of Immigrants: Does Entrepreneurship Matter? 51
The Journal of Entrepreneurship, 23, 1 (2014): 3556
Self-employed
Immigrants
Salaried
Immigrants
Model 1 Model 2 Model 3 Model 4 Model 1 Model 2
B B B B B B
Context-
related
factors
Industry
sector-
related context
Extractive 0.43 0.40 0.48 0.39
Transforming 0.50 0.53 0.50 0.49
Business
services
0.07 0.07 0.05 0.01
Consumer
oriented
0.26 0.18 0.31 0.21
Environment-
related context
Urban 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(**) 1.15
N 188 188 188 188 806 806
Chi
2
38.67() 48.71() 38.78() 37.52() 48.54() 55.03()
R Nagelkerke 0.25 0.31 0.25 0.24 0.08 0.09
Source: 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 and
Mora (2004) and Hjerm (2004). Socio-demographic variables related
to the origin of individuals were not significant predictors of self-
employed and salaried immigrants earnings, and, thus, Hypothesis 3a is
not supported for these subsamples.
A few variables related to industry sectors and the motivation to
start up was added to the base model for self-employed immigrants.
Unexpectedly, necessity-driven entrepreneurs were more likely to have
an above-average income than opportunity-driven entrepreneurs. The
high risk usually involved in opportunity-driven ventures may indeed
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52 Nahikari Irastorza and Iaki Pea
The Journal of Entrepreneurship, 23, 1 (2014): 3556
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 and
salaried immigrants living in wealthier regions are more likely to be
above average than their counterparts. Nevertheless, whereas living in an
urban area increases the probability of greater income for salaried
immigrants, the opposite was found for self-employed immigrants. The
negative 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 a
higher level of competition. In sum, Hypothesis 3b is completely
supported for salaried immigrants and only partially for the self-
employed. None of the industry-related variables are significant and
thus, Hypothesis 3a is not supported for immigrant entrepreneurs.
In short, self-employed immigrants who fill one of the following
conditions, namely, holding a college degree, being necessity-driven or
living either in rural areas or wealthier regions, are expected to reap
above-average earnings. On the other hand, the income of salaried
immigrants who have a college education or live either in urban areas or
in wealthier regions is likely to be greater than for other salaried
immigrants.
Additional models included interaction variables in order to capture
the joint effect of the origin of individuals and human capital variables.
Due to the modest number of observations for self-employed immigrant
individuals in our database, we ran three regression analyses to include
interaction variables combining educational level, age and gender with
the immigrants origin (models 2, 3 and 4). As shown in Table 5, the
effect of interaction variables was stronger for self-employed than for
salaried immigrants. On the one hand, we found that the earnings of
highly educated, self-employed Africans, Europeans and South
Americans were more likely to be above average than those of their
counterparts. On the other hand, our findings show that, while being
male increased the probability of above-average earnings from self-
employment in models 2 and 3, none of the interaction variables
combining the origin, age and gender of individuals were significant.
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Earnings of Immigrants: Does Entrepreneurship Matter? 53
The Journal of Entrepreneurship, 23, 1 (2014): 3556
Conclusion
In this article we examined the earnings of self-employed and salaried
immigrants in Spain. Based on human capital and spatial economic theo-
ries, we suggested a multidimensional theoretical framework which
involves individual- and context-related factors to analyse the effect of
self-employment on the earnings of immigrants. We found support for
the socio-economic advancement hypothesis proposed by Constant et al.
(2003) since earnings of immigrant entrepreneurs were slightly greater
than those of salaried immigrants.
Human capital variables, such as education levels, and environmental
variables related to the location of individuals and firms were found to be
the most significant predictors of both self-employed and salaried immi-
grants earnings. Unexpectedly, entrepreneurs earnings were greater in
rural than in urban areas. Future entrepreneurs should bear this in mind
when they seek the most appropriate location to start up firms. While
interaction variables, which combine educational level and origin of
individuals, influence entrepreneurial immigrants earnings, they do not
explain 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 sam-
ple size for the immigrant entrepreneurs group is modest. Due to the
absence of variables regarding, for example, the number of hours
worked, we could not assess the opportunity cost of self-employment.
Despite these caveats, we believe that our results are reliable enough to
shed some light on the factors explaining immigrants earnings.
Policy makers should be aware of the increasing significance of the
entrepreneurial activity of immigrants in Spain. This article provides
empirical evidence for slightly greater gains in immigrant earnings
derived from self-employment than from salaried employment. Various
factors may cause this gap. On the one hand, salaried immigrants may
face 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 cent
less than native men (Martn, 2006). On the other hand, apart from the
traditional low-skilled and labour-intensive activities referred to in the
immigrant entrepreneurship literature, immigrants may be creating
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54 Nahikari Irastorza and Iaki Pea
The Journal of Entrepreneurship, 23, 1 (2014): 3556
innovative and profitable businesses and, thus, earning more. We believe
that public institutions should offer tailored responses to improve the
economic integration of immigrants in Spain depending on the situations
described above. First, policy makers should analyse and combat the
discrimination salaried immigrants may suffer in the labour market.
Second, immigrants should seriously be taken into account as an
important target group for the promotion of entrepreneurship.
Further in-depth analysis of this topic requires more data, such as, the
innovation 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 vary
according to the regulatory frameworks and the development of the
welfare state of various countries. A cross-country comparison would
allow an assessment of the effect of diverse social and institutional
environments on the economic integration of immigrants. Finally, the
application of qualitative techniques such as in-depth interviews would
allow the assessment of the efficiency of self-employment as a tool for a
better social integration in host societies.
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