This study investigates empirically how residence in ethnic enclaves affects labour
market outcomes of refugees. Self-selection into ethnic enclaves in terms of
unobservable characteristics is taken into account by exploitation of a Danish spatial
dispersal policy which randomly disperses new refugees across locations conditional
on six individual-specific characteristics.
The results show that refugees with unfavourable unobserved characteristics are
found to self-select into ethnic enclaves. Furthermore, taking account of negative
self-selection, a relative standard deviation increase in ethnic group size on average
increases the employment probability of refugees by 4 percentage points and
earnings by 21 percent. I argue that in case of heterogenous treatment effects, the
estimated effects are local average treatment effects
