Net Migration, Job Creation and Business Formation: Is Texas Different from the Rest of the U.S.?

We asked our Senior Fellow Dr. Pia Orrenius and her research partner Dr. Madeline Zavodny to give us a preview of their research on whether the relationship between immigration, business formation and job creation is different in Texas than in the rest of the U.S. The following views expressed here are solely those of the authors and do not reflect those of the Federal Reserve Bank of Dallas or the Federal Reserve System.

Researchers have recently begun to examine the connection between immigration, job creation and business formation. These studies are motivated by a large literature that concludes that immigration has at most a negligible adverse effect on US workers but sheds little light on why that is the case. One possible reason is that immigration may spur job creation and business expansion, particularly in areas that receive large immigrant inflows. Studies find that immigrant inflows lead to growth in the number of business establishments when looking across US metropolitan areas, either by spurring business formation or by reducing business closures. Immigrant inflows also boost the number of jobs, primarily by reducing job destruction rates rather than increasing job creation.

This project uses multiple data sets to examine whether the relationship between immigration and business formation and job creation is different in Texas than in the rest of the US. Texas might be different since it has a considerably higher share of immigrant workers than the US as a whole, and its economy grew faster than most other states during the 2010s. The project looks not only at international migration but also at domestic migration—people moving to Texas from elsewhere within the US. Further, it looks at out migration, whether US natives and immigrants already in Texas stay in Texas.

As the final project will show, Texas is indeed very different from the rest of the US. First, our analysis of Business Dynamics Statistics data shows that Texas had a higher net business formation rate than the rest of the US in recent years. This was due largely to the state’s high rate of business formation rather than a low rate of business closures. Texas’ net job creation rate is less of an outlier, although both job creation and job destruction in the state outpaced the rest of the US.

Second, our analysis of data from the American Community Survey reveals that Texas had lower domestic in-migration rates than the rest of the US as a whole for most of the past decade. This surprising finding is true for US natives, all immigrants and Mexican immigrants alike. Despite Texas’ strong economic growth during this period, the state failed to attract people from other states in large numbers relative to its population. However, the state did outpace other states in terms of attracting immigrants coming from Mexico. Where Texas was truly exceptional is its out-migration to other states: Texas is the nation’s stickiest state, with very low domestic out-migration by US natives, all immigrants and Mexican immigrants.

As a result, Texas is an outlier in the relationship between net migration and net business formation or net job creation. As the project will show, there is a strong positive relationship between net migration and net business formation or net job creation. Texas actually did better in terms of net business formation and net job creation than predicted by its net domestic migration and international migration rates in recent years. The report will discuss possible reasons for this Texas exceptionalism. The report also will investigate differences between major metropolitan areas within the state in terms of net migration, job creation and business formation.

To read more research on human capital and migration, go here.