Ethnic Enclaves and Immigrant Labor Market Outcomes: Quasi‐Experimental Evidence

I examine the effects of the ethnic enclave size on labor market outcomes of immigrants. I account for ability sorting into enclaves by exploiting a Danish spatial dispersal policy under which refugees were randomly dispersed across locations. First, I find strong evidence that refugees with unfavorable unobserved characteristics self‐select into ethnic enclaves. Second, a relative standard deviation increase in the ethnic enclave size increases annual earnings by 18% on average, irrespective of skill level. Third, further findings are consistent with the explanation that ethnic networks disseminate job information, which increases the job‐worker match quality and thereby the hourly wage rate.