Neighborhood Quality and Labor Market Outcomes: Evidence from Quasi-Random Neighborhood Assignment of Immigrants
Information from questionnaire studies concerning respondents’ personal contacts, combined with register data on their employment status a year after their participation in the survey, show that unemployed respondents with many employed acquaintances more frequently find work than others do. Living in housing areas with many socially vulnerable people may therefore damage the prospects of job-seekers on the labour market because of a lack of acquaintances among people in employment. This hypothesis was tested by using a unique natural experiment conducted in the period 1986-98 in which refugees coming to Denmark were assigned to municipalities in a quasi-random manner, which was a good way of resolving the methodological problems connected with endogenous selection of area of residence. When the random allocation to municipalities was taken into account, it was found that living in a socially deprived area did not in itself affect the prospects for male refugees on the labour market. Nor was the probability of employment affected by the general rates of employment for men living in the same residential area. However, employment was affected positively by a higher rate of employment among male non-Western immigrants and men from the same ethnic background living in the same area. These findings represent strong evidence to show that to some extent, immigrants find work through employed immigrants and other personal contacts with people from the same ethnic background living in the same area, and that contacts of high quality increase both the chances of finding work and the level of wages obtained.