The Impact of Segregation on Failing Labor Market Integration in Sweden – Causal or Not?

Abstract

Labor market integration of immigrants is an important issue in the political debate in many countries. Segregation is one factor often assumed to impact labor market integration negatively – through processes related to socialization, networks or stigmatization. Nevertheless, previous research finds mixed results about the economic effects of residing among people with similar ethnic backgrounds. I conduct an empirical analysis of the relationship between segregation and labor market integration in the 100 most populated Swedish municipalities. The regression analysis shows that more segregated municipalities indeed perform worse at labor market integration. The association is however spurious. The foreign-born who have not completed a secondary education reside more often in more segregated municipalities, and this category of immigrants also struggles to find jobs. Historic abundance of housing explains a large part of the settlement patterns of this category with weak labor market prospects, whereas having a larger immigrant population on the whole does not. The findings are robust for different operationalizations of labor market integration and testing for reverse causality. Moreover, no interaction effect is found between segregation and poverty. The findings offer support to focus policy efforts on improving the employability of the unemployed. Fears that segregation perpetuates unemployment among the foreign-born appear overstated, even though desegregation policies may still be justified on other grounds.