Ethnic enclaves and immigrant economic integration Updated

How might living in enclaves affect immigrants’ labor market success?

The clustering of immigrants in ethnic enclaves can affect their labor market prospects in several ways, and the direction of the overall effect is a priori unclear. Ethnic enclaves may provide a “warm embrace,” especially for newly arrived immigrants, with the ethnic network in an enclave providing valuable information on opportunities in the labor market, job contacts, or job-search channels [1]. Word-of-mouth via personal contacts is often found to be more efficient in providing reliable information than formal channels. It is also possible that enclaves directly provide jobs within the so-called “enclave economy,” since ethnic business owners are likely to hire co-ethnic workers [2]. A sushi restaurant, for example, may prefer a Japanese to a native applicant, which would create a form of positive discrimination that immigrants welcome within an enclave economy. Furthermore, immigrant workers in an enclave economy avoid labor market discrimination they may encounter outside the enclave. Overall, the benefits associated with living in an enclave can be thought of as a “buffer,” which reduces the cost of cultural or language assimilation by making these requirements less necessary for labor market success. In addition, well-established and high-achieving ethnic peers may serve as role models to inspire newly arrived immigrants to invest in skill acquisition and/or education of their children [3], [4]. Residence in an ethnic enclave may therefore benefit immigrants’ economic performance.

However, there are also reasons why ethnic enclaves might hamper immigrants’ economic assimilation. First, an enclave economy can offer only a limited number of jobs. In addition, wages in an enclave economy are typically lower than what could be earned in the larger host-country labor market, where there is a greater range of alternative job opportunities. Second, while a local enclave economy might offer job opportunities in the short term, they might become “mobility traps” in the long term if low-skilled ethnic concentration hampers proficiency in host-country skills, especially language skills, and reduces the incentives of immigrant parents to invest in the education and skilling of their children. This would limit the opportunities of finding or moving to better-paying jobs in the wider labor market, outside the enclave network. Another argument for adverse enclave effects relates to the observation that ethnic neighborhoods emerge due to discrimination in the housing market. Consequently, ethnic enclaves are usually located geographically far away from the most attractive employment opportunities, which in turn hampers immigrants’ chances in the labor market.

Empirical studies are in the most part unable to test specifically any of the above mechanisms; instead they estimate net effects. Since the direction of this overall effect is theoretically ambiguous, it must be determined by empirical analysis.

The residential sorting problem

A major problem in analyzing potential effects of living in an ethnic neighborhood is that immigrants are not randomly assigned to neighborhoods. Rather, residential location is an individual or household choice. It is therefore quite likely that individuals choose where to live based on individual skills that also affect their labor market outcomes. For example, if immigrants with relatively unfavorable labor market skills locate in ethnic enclaves to a greater extent, and also experience more difficulty in finding jobs, one conclusion might be that there are negative associations between enclave residency and employment probabilities, solely due to such residential “sorting.” Those immigrants would in all probability have difficulties in integrating into the host country labor market anyway, irrespective of whether they reside in an enclave or not. On the other hand, highly-motivated immigrants might move out of enclaves. Consequently, a naïve comparison of immigrants’ labor market success, inside and outside enclaves, cannot determine whether living in an enclave actually causes adverse labor market outcomes. In sum, any empirical study that attempts to provide causal effects of enclaves on immigrants’ economic performance must credibly address this “sorting problem.” In fact, this is the main empirical challenge that has to be addressed in the literature concerning enclave effects.

Several studies avoid the problem of sorting at the neighborhood level by analyzing variation in enclave size across larger geographical areas [1], [5]. The underlying assumption is that the sorting problem is less prevalent across than within cities (or regions). Another approach is to exploit variation at the very disaggregated geographical level of residential housing blocks [6]. Here, the assumption is the absence of endogenous sorting at the block level within neighborhoods. Studies based on these approaches find that immigrant enclaves (or enclaves made up of ethnic minorities) are, on the whole, harmful to employment and earnings.

The “ideal” approach to studying enclave impacts that are not affected by the sorting problem would be to perform a policy experiment by which immigrants are randomly distributed across neighborhoods, or regions, in a host country. Policy experiments that come close to this setting are spatial dispersal policies that are practiced by some Western countries, where refugees and asylum-seekers are randomly assigned to locations upon arrival in the host country. By exploiting such policy experiments, four empirical studies estimate the causal impact of ethnic clustering on immigrants’ labor market outcomes, [7], [8], [9], [10], and two studies estimate the effect of ethnic concentration on educational attainment of the second generation [3], [4]. In particular, these studies exploit the quasi-experimental settings in Sweden, Denmark, the US, and Germany, whereby refugees and asylum-seekers were distributed upon arrival across the host country by public authorities. The centralized placement policies hence preclude the immigrants from immediate self-sorting according to their own preferences.

Studies based on refugee and asylum-seeker dispersal policies present, to date, the methodologically most rigorous evidence of enclave effects on immigrants’ labor market integration, while similarly reliable evidence concerning economic migrants is very rare. Yet, although humanitarian migration represents only a small part of overall migration to OECD countries (Figure 1) and the evidence concerning asylum-seekers might not be strictly generalizable to all immigrants, it still provides important information. The main reason for this is that labor market integration is likely to be slower and less successful for asylum-seekers than for economic migrants, since refugee migration is not motivated by employment reasons. The effects found for refugees and asylum-seekers might therefore be seen as a “lower bound” of enclave effects for other migrant groups.

The studies on Sweden and Denmark look at measures of refugees’ labor market outcomes between six and eight years after assignment [7], [8], [9]. At this point, individuals have themselves chosen where to live (after initial placement through the dispersal policy asylum-seekers are free to move). Naïve estimates of associations between enclave size and labor market success are therefore prone to the sorting problem described above. The researchers then account for potential sorting into enclaves by using information on each individual's location of initial assignment under the dispersal policy. Since the assignment was decided by the public authorities, this approach exploits an externally caused variation in enclave size that should not be related to individuals’ own location preferences. Such estimates suggest a causal relationship between living in an enclave and labor market success, rather than merely a correlation.

Interestingly, the comparison between the naïve estimate of the enclave effect and the estimate that accounts for causation is informative about the extent and direction of residential sorting. The studies on Sweden and Denmark provide clear evidence of “negative” residential sorting, in the sense that immigrants with relatively unfavorable labor market characteristics tend to locate in enclaves to a greater extent [7], [8], [9]. Hence, naïve estimates are downward-biased and this bias seems to be severe. In fact, while living in an enclave appears to be associated with earnings loss when sorting is not taken into account, earnings gains are found when controlling for negative sorting into enclaves.

Who wins and who loses?

The studies for Sweden [7] and Denmark [8] that exploit refugee and asylum-seeker placement policies to provide credible causal estimates find evidence that living in an enclave municipality is associated with considerable earnings gains. The study on Sweden suggests that these positive effects exist mainly for the group of low-skilled immigrants, whereas the high-skilled do not significantly benefit (but also do not lose) from living in an enclave, in terms of earnings. For immigrants with fewer than ten years of schooling the authors find that an increase in the enclave size (measured as the share of co-ethnic residents among the local population) by one standard deviation is associated with an earnings gain of around 13%, eight years after immigration. The study on Denmark similarly finds enclave size to be associated with earnings gains. Yet, this effect is found to amount to 18% in annual earnings, seven years after immigration, irrespective of skill levels. This suggests that, in contrast to the Swedish study, there is no indication of differences in the earnings return to living in an enclave across educational groups. None of the studies finds significant gender differences for the enclave size effect on earnings. Results of the Danish study additionally indicate that earnings increase with enclave size, but at a decreasing rate.

These two studies also investigate whether enclave residence affects immigrants’ employment rates. The study on Sweden reports zero effects of enclave size on employment (i.e. the probability of having positive earnings). Similarly, the study on Denmark finds no significant association between enclave size and employment rates for the group of low-educated immigrants. However, the group of highly-educated immigrants in Denmark appears to suffer a decrease in employment probability of about 2.1 percentage points for every standard deviation increase in enclave size. Overall, there are indications that at around seven or eight years after immigration, low-skilled immigrants experience stronger returns to living in an ethnic enclave than the highly-skilled [7], [8].

It's enclave quality, not size!

The enclave literature points to the importance of the quality of the ethnic network that immigrants are exposed to in enclaves. In fact, empirical studies show that high-quality enclaves, in terms of income, education, or (self-)employment rates, appear to drive the positive earnings effects [3], [4], [6], [7], [8]. Hence, residing in a relatively low-quality enclave may actually harm labor market outcomes.

By explicitly testing whether there is an independent effect of enclave size beyond that of enclave quality, a second Danish study, again using the refugee dispersal policy, finds that this is not the case [9]. In fact, controlling for enclave quality, the effect of enclave size is negligible, both for employment and earnings. On the other hand, the effect of enclave quality (measured as the local co-ethnic employment rate) is positive and statistically significant. Overall, these results suggest that whether the influence of ethnic enclaves is positive or negative depends on the quality of the ethnic network in the enclave.

A study on immigrants in the US finds that the effect of enclave size on both earnings and inactivity varies with the average education levels of ethnic groups [11]. While groups with very low education levels, such as immigrants from Mexico and Central America, suffer negative consequences from living in enclave communities, groups with relatively high education levels benefit. The results further indicate that the turning point of negative to positive enclave effects is at about a group's average education levels, which is between tenth grade and minimal post-secondary education. Thus, living in an enclave where most co-ethnics have post-secondary degrees is beneficial, while living in enclaves where most adults have education below tenth grade appears to be disadvantageous.

Another study on the UK finds that living in close proximity, that is, within one hour's travel time, to a large number of employed neighbors of the same ethnicity is positively associated with job-finding rates [12]. Interestingly, this effect is local, that is, it decays rather rapidly with distance and vanishes beyond about an hour's travel time.

Short- and long-term effects of enclaves

While the evidence weighs unambiguously in favor of enclave quality, and at least conditionally on enclave size, in improving labor market outcomes of newly arrived immigrants, the evidence on the timing of these effects is mixed. Evidence from Denmark suggests constant positive effects over time (the analysis covers two to six years after immigration) [9]. The Swedish study, on the other hand, finds that the positive effect of living in a high-quality enclave increases with time spent in the host country and begins to take effect after around eight years following immigration [7].

But what about effects in the very short term? Immediately following arrival, enclave size might impede incoming immigrants’ job-finding success if the presence of co-ethnics represents competition for jobs, rather than a source of information. A US study uses a similar policy experiment as the Scandinavian studies to estimate the short-term effects of enclave size on job-finding rates of newly arriving refugees and asylum-seekers [10]. Ninety days following arrival, the employment rate of the recent immigrants is found to be negatively affected by the number of other recently arrived immigrants, while the number of co-ethnic immigrants that have arrived two or more years before positively affects their job-finding rates.

A more recent study provides comparable evidence on both short- and long-term effects on labor market outcomes using the context of a dispersal policy in Germany [13]. In contrast to the US study and Scandinavian studies, the authors find that enclave-size effects are positive in the short term while they are negative in the long term. They argue that in the short term, larger ethnic enclaves provide job opportunities through informal networks and hence the incentive of immigrants to upgrade their skills/human capital is low. This in turn constrains the long-term labor market choices of immigrants and keeps long-term employment and income opportunities low.

In the very long term 20–30 years, enclave effects on labor market assimilation and integration of immigrant families are also determined by the labor market outcomes of second-generation immigrants. Lack of intergenerational mobility could perpetuate the chain of inferior labor market outcomes for immigrant populations in host countries. To what extent do ethnic enclaves facilitate or hinder intergenerational mobility? As in the case of labor market outcomes, centralized dispersal policies have been used to address endogenous location choices in studying this issue [3], [4].

One study uses the refugee settlement policy in Sweden to estimate the effect of enclave quality on educational outcomes of immigrant children [3]. The results indicate that a larger fraction of highly-educated adults in the ethnic enclave increases the educational performance of immigrant children in school. Another study uses a centralized settlement policy in Germany to study the effect of ethnic enclaves on intergenerational mobility in education among so-called ethnic German immigrants [4]. These are individuals of German descent who lived in the pre-1945 German eastern territories and Germans whose ancestors had emigrated from Germany in the 18th century to Eastern Europe. While many of them returned to Germany immediately after the end of World War II, resettlement movements came to a standstill with the post-war isolation of Eastern European countries and construction of the Berlin Wall in 1961. The immigration of ethnic Germans in to Germany resumed after the fall of the Iron Curtain.

Ethnic Germans, with their economic motive for immigration, are closer to the average economic immigrant than refugees or asylum seekers. The findings from this study indicate a positive effect of enclave quality on intergenerational mobility—educational achievement improves specifically for children of low-educated immigrants in high-quality enclaves.

Ethnic enclaves in Europe and the US

Does the extent of residential ethnic clustering among immigrants vary across counties? The answer to this question is complicated by two issues in particular. First, there is no consensus on how to measure ethnic concentration. Second, there is limited availability of relevant data (by immigrant nationality and at geographically disaggregated levels).

Three studies report a comparable measure of local ethnic concentration for immigrant groups in the US, Sweden, and Germany. In particular, they define ethnic enclaves as areas in which the population's share of an ethnic group is higher than the share of that group at the national level. The national share serves as a benchmark since it is the share that could be expected if an ethnic group was uniformly distributed across areas within a country. The US study reports that 48% of US residents with a migration background lived in relatively high-concentration postcode code areas in 1979, with significant dispersion across ethnic groups (e.g. 83.8% of Mexicans, 49.6% of Italians, compared to only 25.8% of Greeks) [14]. The Swedish study shows that in 1997, 42% of first-generation, that is, foreign-born, immigrants resided in ethnic enclaves [6]. Finally, the German study reports that among immigrants from the former Yugoslavia, Italy, and Greece, approximately 40–50% lived in high-concentration counties in 1987, compared to only 21.2% among Turkish immigrants [15].

The overall levels of ethnic clustering among immigrants therefore appear to be strikingly similar in European countries and the US, with around 40–50% of the respective immigrant population living in ethnic enclaves.