Welfare Losses due to too Few Start-Ups by Immigrants in Key Economic Sectors

Immigrants in Germany found considerably fewer firms in key economic sectors, such as engineering, chemical industry or software development, than Germans. Thus, with regard to the so-called knowledge-intensive start-ups, the present growth potential in Germany is not fully exploited, resulting in welfare losses for the society as a whole. These are the findings of a current study conducted by the Centre for European Economic Research (ZEW) in Mannheim.

The study compares start-ups by German founders and founders with a migration background in knowledge-intensive economic sectors. The study defines people with a migration background as persons without German citizenship who or whose parents immigrated to Germany. The study analyses the group of former “migrant workers” and their offspring who immigrated to Germany from Italy, Spain, Greece, Turkey, Portugal or the former Yugoslavia. With around seven per cent of the total population, this group is the largest immigrant group in Germany.

The study indicates that people with a migration background are less than half as likely to found a start-up in a knowledge-intensive sector as Germans. Start-ups by founders with a migration background have fewer employees than firms with German founders when the firms are founded. Founders with a migration background are younger when founding a firm in the knowledge-intensive sector, and the firms have a shorter life span. When only comparing firms of the same size, there is no difference between the two groups with respect to patent applications, an indicator for the innovative strength of the start-up.

Moreover, the study’s findings suggest that the cooperation of firm founders with and without a migration background pays off. On average, start-ups by a group of founders with and without a migration background have the same number of employees than firms that were solely founded by Germans. Both groups also have a similar probability of surviving in the manufacturing industry.

"The fact that people with a migration background are less involved in knowledge-intensive sectors probably originates from the education gap between immigrants and Germans," says Elisabeth Müller, researcher and professor at the Frankfurt School of Finance & Management, who is responsible for the study. "In order to tab the full innovative potential in Germany, it is important that more people with a migration background found start-ups in knowledge-intensive sectors. The most important conclusion from the study’s findings is that politicians increased their efforts to improve the educational level of second- and third-generation immigrants."

The study is based on information of 4,418 start-ups with founders with a migration background, 2,127 start-ups with a group of German founders and founders with a migration background and 133,384 start-ups with German founders.

For further information please contact

Prof. Dr. Elisabeth Müller, Phone +49 69/154 008-790, E-mail e.mueller@fs.de