Show 'Em the $$$

By Ariel West

Foreign-born college graduates in the science, technology, engineering and mathematics (STEM) fields are far less entrepreneurial than foreign graduates in other majors, according to an analysis of the American Community Survey. Why aren’t these technologically and scientifically minded people starting new businesses?

That’s what Oklahoma State University associate professor of economics and legal studies John Winters and co-author Zhengyu Cai from Southwestern University of Finance and Economics in Chengdu, China, wondered, too, as immigrants to a developed country are generally thought to be more entrepreneurial. One partial yet important explanation is the earning differences between STEM and non-STEM fields: Employed STEM graduates (vs. entrepreneurs) make a lot more money.

“Only about 8 percent of foreign-born STEM graduates own their own businesses compared to 11.3 percent of foreign non-STEM graduates,” Winters says. “We wanted to try to explain this … so we started by documenting that foreign-born STEM graduates, on average, earn much higher in paid employment than their non-STEM counterparts.”

The pair compared earnings differences across various college majors for foreign-born graduates. On average, STEM graduates made more money being employed compared to self-employed STEM graduates, but they also made more money than employed non-STEM graduates and self-employed non-STEM graduates. Simply put, STEM graduates have less financial motivation to pursue self-employment.

“We find that earnings differences explain a considerable portion of this self-employment difference between STEM and non-STEM graduates,” Winters says. “Specifically, higher earnings in paid employment accounts for more than 40 percent of the differing self-employment rates between foreign-born STEM graduates and non-STEM graduates. This is only a partial explanation, but a pretty important part of the explanation. … There are certainly some other factors that might be at play here.”

Winters suggests that future research should study people transitioning into and out of self-employment and documenting the earnings differences before and after the transition.

“Both STEM and self-employment are independently important ingredients for economic growth and prosperity,” Winters says. “Both play major roles in driving innovation. However, our study documents that foreign-born STEM workers are not especially entrepreneurial in part because they don’t have to be. Many prefer the comfort and security from paid employment and the high salaries that they can earn.

“There’s not necessarily a policy solution needed for the low self-employment rate for STEM graduates. We’re more concerned that the non-STEM graduates on average do quite poorly in self-employment, which may reflect some sort of selection into self-employment out of necessity or due to limited options in the paid labor market. Some foreign non-STEM graduates have skills that don’t translate well to the American labor market, perhaps because of language, culture, or employer uncertainty about foreign university credentials.”

The research article, “Self-employment differentials among foreign-born STEM and non-STEM workers,” was accepted for publication in the Journal of Business Venturing. To view the article, visit okla.st/2tuovt4.