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Biographic Sketch & Links: Marcus Noland
[Editor's note: We gratefully acknowledge a generous contribution, with a
written permission, of this paper of Marcus Noland to ICAS. This paper was prepared for the conference "Korean Diaspora in the World Economy" conference in Seoul, Korea, 10 October 2002. Marcus Noland would like to thank Scott Holladay for excellent research assistance. sjk]
This paper examines the economic impact of Korean immigration on the US economy, focusing on the third wave of immigration that began in 1965. This group of Korean immigrants appears to be distinct both from most other national immigrant groups and previous Korean immigrants—the third-wave immigrants have high levels of educational attainment, with rates of college education nearly twice the US national average. They form businesses at a rate 70 percent higher than the US public at large, and have savings rates of roughly twice the national average. Their children have achieved even higher rates of educational attainment and earn per capita incomes well above the national average. There is a correlation between the presence of Korean immigrants and state economic performance, and if this were interpreted as a causal relation, it would suggest that a doubling of the Korean immigrant population would increase national per capita income growth by 0.1-0.2 percentage points.
Korean Immigration to the United States
The first treaty on immigration between the United States and Korea was signed in 1882 and within a few years a small number of merchants, students, and political dissidents began arriving in America. It would be another 20 years, though, before significant numbers of Koreans came to the United States.
That process began in 1893 when American sugar and pineapple planters in Hawaii engineered the downfall of the Hawaiian royal family and declared Hawaii a republic. Hawaii was annexed by the United States in 1898 and declared an American territory in 1900. At that time, the immigration into the United States of Chinese laborers was prohibited by the Chinese Exclusion Law, so when the Hawaii Sugar Planters Association needed labor to break strikes by Japanese plantation workers, they turned to Korea. In 1902, King Kojong approved the first organized migration to the United States; the beginning of Korean immigration to the United States is conventionally dated 13 January 1903, when 100-odd Korean immigrants landed in Honolulu. (Given that they are sometimes called "the Irish of Asia," perhaps it is fitting that the first Koreans in America arrived on a steamer christened the Gaelic.) Over the next two years, more than 7,000 Koreans would arrive in Hawaii, most recruited as strikebreakers by the Hawaiian planters. But this predominant channel of Korean immigration to the United States was closed in 1905, when the Japanese government, concerned about the welfare of Japanese workers in Hawaii, successfully pressured the Korean government to halt emigration.1 The passage in 1926 of the Asian Exclusion Act closed the door from the US side.
With respect to plantation workers, the Japanese could have saved themselves the trouble--the first-wave Korean immigrants, recruited mainly from urban areas, showed a distinct lack of interest and aptitude for plantation work and fled the plantations at a higher rate than any other ethnic group. However, with conditions deteriorating in Korea, few returned home. Instead, many settled in Hawaiian towns, especially Honolulu.2
About 90 percent of the Korean immigrants were male, and this immigrant community exhibited behavioral pathologies typical of other almost exclusively male societies. About 400 of the initial immigrants were Christian. The Koreans began to create social and political organizations in Hawaii, leaders of which tended to either be Christian, have a Korean farm background, or be married. The planters subsidized Christian missionary work among the obstreperous Koreans with the aim of socializing them into better workers. Significant conversion occurred, and the churches have remained an enduring part of Korean-American community life.
Due to urbanization and the unbalanced sex ratio (despite the practice of importing brides), the Korean community in Hawaii exhibited a high rate of inter-marriage with other ethnic groups. By 1970, the Koreans had the highest per capita income and lowest unemployment rate of any ethnic group in Hawaii. By the time the third great wave of immigration began in the 1960s, the process of acculturation had proceeded so far that the newly arriving immigrants did not recognize the thoroughly assimilated third-generation Koreans as distinct from Americans.
Of the Korean immigrants to Hawaii, more than 2,000 continued on the US mainland, settling on the west coast. Several hundred settled in agricultural communities in central California and established some prosperous agricultural businesses there, which were important sources of finance for the Korean nationalists in exile. Indeed, the first president of the Republic of Korea, Syngman Rhee, along with other nationalist leaders such as An Ch’ang-ho and Pak Yong-man, emerged from this milieu.3 While Koreans faced racial discrimination in the United States, with the advent of the Second World War, their antipathy toward the Japanese did not go unnoticed, either by the US government authorities or the general American public.
A second wave of immigration occurred in the decade following the Korean War and was dominated by students who came to America for graduate education. Some stayed, while many others returned to Korea; a few such as Kim Jae-ik, SaKong Il, and Kim Ki-hwan played important roles in the development of the Korean economy in the early 1960s.4 In addition to students, during this period around 3,000 Koreans annually immigrated as the spouses of American citizens (Jasso and Rosenzweig 1990). This group was overwhelmingly female and presumably many were wives of US servicemen stationed in Korea.
The third wave of Korean immigration to the United States was made possible by the 1965 Hart-Celler Act that greatly liberalized the National Origin Quota System and opened the door for greatly expanded immigration from non-European countries, including Korea. The third wave of immigration differed significantly from the first two, in that the immigrants were often college-educated and brought families with them when they immigrated. Indeed, in numerical terms, it is this third wave and its offspring that make up most of the Korean-American community today. 5 Although many of the third-wave immigrants had a college education and were white-collar workers in Korea, they found that lack of English language proficiency hampered the full exploitation of their Korean qualifications within the American economy. As a consequence, many shifted careers and started small businesses or purchased existing businesses of retiring non-Korean businessmen, thus coming to dominate certain types of businesses (such as green groceries and dry cleaning) in American cities such as New York, Los Angeles, Chicago, and Washington.6 In this regard they are part of a long American tradition of successive waves of immigrant businessmen, following earlier immigrant entrepreneurs. Along with the ever-present churches, a "support network" of businesses such as restaurants, newspapers, and radio stations grew to cater to this community.
What seems to distinguish these third-wave Koreans from earlier immigrant groups is that a significant number of them were educated members of the middle and upper-middle classes. So while lack of English language proficiency impeded their ability to continue their previous careers in the United States, they demonstrated a commitment to education and professional attainment, and their current occupational profiles may be a misleading indicator of their underlying capabilities. The trend in recent years has been toward a growth in the number of Korean professional service providers such as doctors, lawyers, and insurance agents, as the children of these immigrants have obtained professional accreditation in the United States, and some have opened such businesses oriented, at least in part, toward the Korean-American community. Data from the 2000 US census confirms the casual observation of upward mobility among the children of Korean immigrants as discussed below.
Statistics on the Korean-American Community
The number of Koreans in the United States has grown dramatically since 1960, when the US Census Bureau first began reporting Koreans as a distinct ethnic group. As shown in Figure 1, the number of "foreign-born" Koreans (i.e. immigrants) has increased from roughly 11,000 in 1960, to more than 1 million in 2000, or about 0.4 percent of the total US population.
According to data from the US Immigration and Naturalization Service, the peak year for Korean immigration to the United States was 1987 when nearly 36,000 Korean immigrants entered the United States (see Figure 2). Since then the number of Korean immigrants has steadily fallen to less than half as many, as improvements in the economic, political, and social situation in Korea has made emigration less attractive. In this respect, the pattern of Korean emigration to the United States has followed the same trajectory of other "sending" countries such as those in Western Europe.
More than one-third of these Korean immigrants are in California, where they make up around one percent of the population. The next most popular destination for Korean immigrants is New York, followed by New Jersey, Illinois, and Washington. In percentage terms, Korean immigrants are most prominent in Hawaii, where they make up nearly two percent of the state’s population. According to Jeong (2002), if the children of immigrants and undocumented workers are added in, the Korean-American community in the United States is probably in the order of 1.5-1.6 million people.
The census data indicate that Koreans are close to the US population median for household income ($50,000 for Koreans versus $51,200 for all Americans) and per capita income ($20,000 for Koreans versus $26,000 for all Americans), and that the share of the Korean population having attained a college degree or better (49.2 percent) is almost twice the national average (26.8 percent). Jeong reports that an analysis of the census data done by the Korean American Coalition (KAC), a nongovernmental organization, found that second-generation Korean-Americans appear to be upwardly mobile, with median incomes of $70,000, nearly 40 percent higher than the national average, and a rate of college degree attainment of 54.7 percent, more than twice the national average. Korean immigrants exhibit a higher rate of entrepreneurship than the average American, with Korean-Americans in 2000 having a "business density" (i.e. persons per business) of 7.9, compared to 13.5 for the general population (U.S. Small Business Administration, 2001, Table 12). This is to say that the Korean-American community has been creating businesses at a rate 70 percent higher than the rest of the population.
A Census Bureau survey of minority businesses found that in 1997, Korean-Americans owned 135,571 businesses, generating $45.9 billion in revenue, employing 333,649 workers with wages totaling $5.8 billion (U.S. Small Business Administration, 2001, Table 11). These figures may be a bit misleading, though. Of the 135,571 businesses mentioned above, more than half (85,495) are sole proprietorships (U.S. Small Business Administration, 2001, Table A.1). The 50,076 firms that pay employees average nearly 7 workers per establishment with average wages of more than $17,000 annually (U.S. Small Business Administration, 2001, Table 15).
This, in turn, represents a tremendous intensification of business activity from the already high level documented in the first Census Bureau survey in 1982 (see Table 1). If one applies the 1980 census population figure to the 1982 business formation data reported in Table 1 (which would tend to lend an upward bias to the "business density" figure) this would yield a "business density" of 9.1 – already substantially below the national average – which dropped even further to the 7.9 rate in 1997 as mentioned above. As a group, Korean-American businesses exhibited a more than 13-fold increase in employment, and a nearly 24-fold increase in revenues in 15 years.
In reality, these figures probably understate Korean-American economic clout. Sole proprietorships and small businesses often understate revenues and even employment. There is no reason to believe that Korean immigrants are atypically accurate in their responses. Ergo, because of their overrepresentation in occupational categories that tend to understate the magnitude of their business transactions, the figures above should be regarded as a floor on actual Korean-American business activity. The Koreans have come a long way from breaking strikes in Oahu.
The Impact of the Korean-American Community
As the preceding section documented, the Korean-American community is characterized by a high-level of economic achievement, entrepreneurial activity, and upward social mobility. It is reasonable to ask what the macroeconomic impact of Korean-American immigration to the United States has been.
Economists have identified a number of channels through which immigration can affect the economy.7 The most obvious channel is the labor market. Immigrants add to labor supply, pushing down wages and raising the rate of return on land and capital. In a simulation model of undifferentiated labor demand, Borjas (1994) calculated that for 1994, the total gains to the US economy were only about $6 billion – and that the amount of redistribution away from native workers ($114 billion) dwarfed the net gain to the economy. Given uncertainty about the net fiscal effect of immigration (while immigrants pay taxes they may also go on welfare and their children attend public schools), Borjas’ analysis suggests that the net impact on native workers may well be negative.
But this approach seems at once too simple and ill-suited for the specific case at hand. First of all, labor is not an undifferentiated mass, and the particular immigrant group in question appears to be unusually well-endowed in human capital. Modern endogenous growth theory suggests that human capital accumulation may be important in forestalling a declining marginal product of capital and a secular decline in growth in high-income economies (Romer 1986 and Lucas 1988). Moreover, as the previous discussion demonstrated, Korean-Americans have been unusually concentrated in the formation of rapidly growing new businesses. This kind of entrepreneurial activity is probably associated with what economist Harvey Leibenstein (1966) described as X-efficiency – a key to the growth of total factor productivity and overall economic prosperity. Immigrant entrepreneurial activity of this sort is also likely to be associated with unusually high savings rates and capital accumulation. Carroll, Rhee, and Rhee (1999), for example, used data from the 1980 and 1990 censuses and found that Korean immigrants had savings and wealth accumulation rates around twice as high as the overall US population. Yet another channel through which immigration can have an impact on macroeconomic performance is by contributing to international trade, thus stimulating global ethnic networks (Rauch and Trindade 2002).
So rather than the usual static demand-for-labor approach, a dynamic growth approach would appear to be more appropriate. The standard framework for empirical investigation is the "convergence" approach of Barro and Sala-i-Martin (1992, 1995) derived from the endogenous growth literature. In this set-up, long-run per capita growth is a function of an initial starting point, the accumulation of physical and human capital, macroeconomic stability, trade openness, economic and political institutions, and so on. While this work has spawned a vast literature on the determinants of growth performance across countries, it is particularly well-suited for studying growth at the sub-national level. This is because many economic phenomena that vary across countries, such as differential rates of inflation or differences in trade policies, can be ignored when examining developments within a single country using data on sub-national jurisdictions.
Table 2 reports regression results for real per capita growth across the 50 states and the District of Columbia. Following Barro and Sala-i-Martin, right hand side explanatory variables include the log of per capita income in the initial year of the sample and three regional dummy variables to capture regional affects. If poor economies grow faster than rich ones as predicted by the standard neoclassical growth model, then they are said to "converge" and one would expect the coefficient on initial income per capita to be negative. To these variables we add two: state government expenditure per capita and the share of Korean immigrants in the state’s population. State government expenditure is a measure of the size of government, which has typically been found to be negatively associated with economic growth in many cross-national studies. In addition to these variables, a weather variable used by Barro and Sala-i-Martin, state educational spending, and the state murder rate were also tried as right hand side variables, but they did not have any robust explanatory power, and in the interests of brevity, those regressions are not reported.
Since the boom in Korean immigration really began with the Immigration Reform Act of 1965, we would ideally like the sample to extend from 1965 to the present. But real per capita income data are reported only every ten years from 1950-2000. Likewise, Korean immigrants are only reported as a distinct group in the 1990 and 2000 censuses. The decision here has been to use the longest state growth rate sample available (i.e. 1950-2000) since we are really interested in long-run growth performance and want to abstract from transitory effects. However, this raises a problematic issue – logically Korean immigration in 1990 cannot cause differences in cross-state growth performance starting at an earlier date (in technical terms the right hand side variable is said to violate exogeneity). As a consequence, it is really not proper to claim that Korean immigration caused the differences in state growth performance, rather that Korean immigration is associated with or statistically correlated with these differences.
With that caveat, the results in Table 2 show that, as expected, initial period per capita income is negatively associated with subsequent growth – i.e. US states converge. State government spending is also negatively associated with growth. The presence of Korean immigrants, however, is positively associated with growth, with a coefficient of 0.46 in regression 2.1 and a coefficient of 0.32 in regression 2.2. This means that a one percentage point increase in the Korean immigrant share of the state population was associated with a 320-460 basis point increase in the state’s real per capita growth rate. However it should be kept in mind that Koreans only made up 0.4 percent of the US population in 2000, so percentage points are probably the wrong magnitude to use in assessing this result. Instead, suppose the Korean immigrant share doubled (i.e. the share of Korean immigrants in the US population increased by 0.4 percent), according to the results in Table 2, this would be associated with a 0.1-0.2-percentage-point increase in the growth rate of per capita income.
This paper has examined the impact of Korean immigration on the US economy. Korean immigrants have been found to have rates of educational attainment nearly twice the US national average; to create businesses at a rate roughly 70 greater than the general population; and to maintain savings and wealth accumulation rates roughly double the national average. The children of these immigrants exhibit even higher rates of educational attainment and incomes approximately 40 percent higher than the US population as a whole. There is a statistical correlation between the presence of Korean immigrants and state economic performance, and if this statistical correlation were interpreted causally, it would suggest that a doubling of the Korean immigrant population would increase national per capita income growth by 0.1-0.2 percentage points.
However desirable this might be, it is unlikely to come to pass. The flow of Korean emigrants peaked in 1987 and has since been falling. Economic, political, and social improvements in Korea have diminished the lure of emigration, and in this respect the pattern of Korean emigration to the United States follows the same historical trajectory of other sender countries such as those of Western Europe. In addition, the 1992 Los Angeles riots may have reduced the attractiveness of the United States as a destination, though this is hard to assess.
An interesting issue for the US economy will be whether the descendents of today’s Korean immigrants will reproduce the same process of assimilation and acculturation that previous immigrant groups have experienced. For example, it could well be that the children and grandchildren of today’s immigrants will manifest attitudes toward risk and entrepreneurship much closer to the American mainstream than to those of their risk-taking forebears. This could be an interesting topic of investigation at conferences celebrating the bicentennial of Korean immigrants in the United States.
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