Segregation in neighbourhoods and labour market outcomes of immigrants: Evidence from random assignment in the Netherlands

How important is the integration of immigrants in society for labour market outcomes? In this paper we examine the effect of residential segregation in neighbourhoods on labour market outcomes, exploiting the random assignment of asylum seekers to neighbourhoods in the Netherlands. Using Dutch administrative data of the period 1995-2004, we know all consecutive places of residence, country of origin, and labour market income of the working population at the level of postal code areas. While OLS results reveal a considerable negative effect of non-Western migrant concentration on labour market outcomes, IV-results show that concentration has a positive effect on outcomes, especially when also other neighbourhood characteristics are controlled for. On average, immigrants residing in high concentration neighbourhoods are 29 percent more likely to be employed and have substantially higher annual wages than immigrants residing in low concentration neighbourhoods. The positive effect of neighbourhoods with high concentrations of non-Western immigrants is especially strong for recent immigrants. Evidence on the heterogeneity within the group of asylum seekers suggests that especially those who benefit most from living in a concentrated neighbourhood tend to go to these areas.