A Warm Embrace or the Cold Shoulder? Wage and Employment Outcomes in Ethnic Enclaves

I. INTRODUCTION The enclave economy hypothesis claims that social ties created by similarities in culture and language generate networks that create optimal employment matches for immigrants and protect them from difficult adjustment periods. The idea is that existing businesses owned by immigrants, or workplaces that employ a large fraction of foreign-born workers, can provide advantageous labor market opportunities. Rather than encounter unemployment or low-wage jobs at the bottom of the occupational hierarchy, immigrants can use networks in ethnic enclaves to gain employment at higher wages. While this is plausible, the hypothesis may under-emphasize the possibility that higher concentrations of immigrants can increase competition for jobs within the enclave, resulting in lower wages and job displacement. In addition, a low-wage, high-unemployment outcome is possible if the enclave functions primarily as a form of secondary labor market for the lowest-skilled immigrants. The purpose of this paper is to examine how ethnic enclaves influence the labor market outcomes of foreign-born workers. Previous studies investigating this issue in the United States have been limited in scope. relying on public-use data sets or focusing on few nationalities or broadly defined ethnic groups that, in some cases, do not share a common language or culture. In addition, the restricted household location information in public-use data is not ideal for studying enclaves because immigrant networks could function differently over large and small geographic areas. Another factor that has, for the most part, been overlooked in previous studies using large cross sections of the population is the distinction between residence and work location. There are two possibilities that make this distinction important in obtaining unbiased estimates of the enclave effect. First, if the enclave economy is a high-wage network, low-skill immigrants who choose to reside in the enclave for social benefits may seek work outside the enclave. If so, failing to control for work location will result in estimated enclave effects that are biased downward. On the other hand, if the enclave is a low-wage network, high-skill immigrants are likely to seek work outside the enclave. If that is the case, the enclave effect will be biased upward as the higher wages obtained by those commuting immigrant workers are attributed to their household rather than work location. This study addresses these issues with the following improvements. First, we use one of the largest household/individual databases available from the U.S. Census Bureau (not public use), with nearly 1 million sample observations from California, Florida, Illinois, New Jersey, New York, and Texas. Second, the large sample size allows us to examine enclave effects for many, specific ethnic groups. Unlike most other studies that have been limited to broad ethnic groups (e.g., East Asian and West Asian), we define 10 immigrant groups sharing a common language and similar culture: Mexican, Central American, South American, Puerto Rican, Cuban, Filipino, Chinese, Vietnamese, Korean, and Indian. Finally, within this cross section of states, we are able to exploit immigrant concentration in many smaller geographic areas. Other studies using public-use data have had to rely on state or metropolitan area concentrations to proxy for the size and influence of an enclave. Our ability to identify smaller areas allows us to capture unique ethnic enclaves that may co-exist within the larger urban metropolis and simultaneously identify those whose residence and work locations differ. To estimate the enclave effect, we specify a series of individual-level wage and employment equations that control for years since migration, English language abilities, and other observable human capital and demographic characteristics. A measure that captures the proportion of the county or county subdivision that is populated by a particular ethnic group is introduced into the model and enclave effects are estimated for each ethnic group. …