Lambert here: I’d be interested to see what readers think of this study. My question would be how representative the ethnicities selected are of ethnicity as such, and whether the effects identified here have persisted over time, historically.
By William Kerr, Professor at Harvard Business School, and Martin Mandorff, Deputy Chief Economist, Swedish Competition Authority. Originally published at VoxEU.
Immigrants are more likely to concentrate around specific industries and entrepreneurship. Market integration and discrimination only go a certain way towards explaining this phenomenon. This column explores how social interactions affect immigrants’ employment decisions in the US. Fifteen ethnic groups are found to cluster around certain industries at a rate 10 times greater than the native population. Immigrants are argued to be drawn to the same industries as their countrymen due to the ease of diffusing skills through social interactions in the group, along with higher earnings due to specialisation.
The book Blue Dreams: Korean Americans and the Los Angeles Riots relates the story of Yun, a Korean university graduate who came to the US in the late 1970s to pursue higher degrees in mathematics. He ended up abandoning those plans to join a relative in running a small store selling trinkets. “There is an expression here: ’What you do depends on who picks you up at the airport,’” he noted. “I, too, followed my relative into the same business.”
This story reflects the broad tendency among immigrant populations to concentrate around specific industries and entrepreneurship. This is not a new phenomenon; historical examples of ethnic specialisation range from the Jews in Medieval Europe to the Japanese in South America. Fairlie (2008) shows that immigrants are much more likely to be self-employed entrepreneurs than natives. Kuznets (1960) observed that “all minorities are characterised, at a given time, by an occupational structure distinctly narrower than that of the total population and the majority.” This is demonstrably true in the US; for example, our data (further described below) show that Eritrean immigrants are 61 times more likely to be taxicab drivers than the average American. As in Yun’s story, this is frequently the result of social interactions within the group.
In recent research, we explore the occupational stratification of immigrant populations in the US (Kerr and Mandorff 2015). We first construct a model demonstrating how social interactions within immigrant groups lead to occupational clustering. The model pinpoints the size of the community and its social isolation as key factors contributing to this effect. Furthermore, the model predicts higher earnings among members of an ethnic group who share the same occupation. We then demonstrate and quantify these predictions empirically.
The Model
The focal point of our model is the link between social interactions and employment. We first distinguish between social interactions—e.g. family gatherings, religious and cultural functions, meetings with friends—and market interactions, which depend on economic integration. Our model assumes social isolation but full market participation, thus diverging from the standard theory of discrimination.
An extensive literature exists on the connection between social interactions and economic behaviour, much of it related to economic behaviour outside the workplace (e.g., Glaeser et al 1996). Others have noted the effect of social interactions on employment – for example, Granovetter (1973) found that jobs are often found via referrals, which in turn tend to come from ‘weak ties’ (i.e., casual acquaintances). Patel and Vella (2013) provided evidence that networks in the immigrant labour market draw new arrivals into similar occupations as their countrymen, and that this leads to higher earnings within the chosen industry. Fairlie and Robb (2007) showed that more than half of business owners have close relatives who are self-employed, and a quarter have worked for those relatives. Kerr and Kerr (2015) show the continued rise in ethnic entrepreneurship for the US.
Our model expands this picture by positing social interaction as a mechanism for skill acquisition. Tacit knowledge and personal insights can be instrumental to higher productivity, especially among the self-employed, and these skills and information can be conveyed at low cost through informal social interactions. These interactions would be natural within settings unique to specific groups, thereby facilitating skill acquisition keyed to specific industries (e.g., Chung and Kalnins 2006). This, in turn, can incentivise concentration around those industries.
Our model identifies a function of entrepreneurial productivity that is increasing in specialisation; that is, the more concentrated the minority group is in a specific trade, the more productive it becomes. The model’s equilibrium shows that not only will groups become more and more specialised, but also that earnings will be positively correlated with the degree of specialisation.
Empirical Analysis
To examine these ideas empirically, we construct a sample of US immigrant and native workers from the 2000 Census of Populations, using the Integrated Public Use Microdata Series.
We quantify ‘overage ratios’ for pairings of ethnic groups and industries, defined as the ratio between a group’s concentration in a certain industry and that industry’s national employment share. For example, 1,654 out of 6,628 Gujarati Indians in the sample (about 25%) work in hotels and motels, while only 0.23% of the general population do, giving the pairing {Gujaratis, hotels} an overage ratio of 108. For our primary metric, we average the overages of all industries for each group, weighted by the percentage of the group’s workers employed in the industry.
The results are striking. Fifteen ethnic groups show industrial clustering over 10 times greater than the native population. Results are broadly robust to changes in the overage aggregating metric. As frequent travellers will likely guess, the taxicab industry is particularly prone to overrepresentation among immigrant groups – it is the industry of maximum concentration for 17 groups, more than any other occupation.
Figure 1.
We then ask what factors contribute to, or detract from, this disposition. To explain stratification, we test the roles of size and group isolation. All but one of the 16 groups in the above graph have in-marriage rates of 64% or higher, indicating very high levels of social segregation. These groups also display a strong positive correlation between in-marriage rates and our overage metrics.
Our analysis shows a strong link between size, isolation and industry clustering – a decrease of one standard deviation in group size is correlated with a 0.63 increase in average occupational concentration. Similarly, an increase of one standard deviation in the in-marriage rate corresponds to an increase of 0.52 standard deviations in occupational concentration. The results, and especially the effects of social isolation, are robust to various changes in the methodology and data.
To address the concern that higher specialisation in a group might lead to smaller size and greater isolation (rather than the reverse), we employ two instrumental variable strategies. First we instrument the size and isolation variables for 2000 using data from the 1980 census, under the assumption that these characteristics have persistent effects, as shown in the empirical work of Patel and Vella (2013). The results remain very close to our original analysis. Next, we instrument size with a gravity model (in which immigrant population size is correlated with the size of the home country’s population and its distance from the US) and proxy the US isolation rate with the in-marriage rate of the groups in the UK in 1991. Findings are again similar to the original results, with the size effect slightly weaker but the isolation effect even stronger.
Finally, we test our model’s prediction that specialisation will lead to higher earnings in the group. We show that a 1% increase in the group’s concentration is linked to a 0.6% increase in total earnings, strengthening the idea that economic incentives help fuel occupational clustering.
Conclusions
The tendency of immigrant populations to cluster around specific industries has wide-ranging ramifications for the US economy and beyond. We propose that even with full market integration and barring discriminatory effects, immigrants will be drawn to the same industries as their countrymen due to the ease of diffusing skills through social interactions in the group. These effects can, however, change over time, as shown by the central role played by the size and social isolation of the group.
Our findings contribute to research on both the internal dynamics of immigrant integration and the roles played by immigrants in the broader economy. We hope that these results can be further expanded by looking for similar effects outside the US; examining the persistence of the effects across generations; and connecting the paper’s ideas to ethnic enclaves, entrepreneurship, and employer-employee data.
References
Chung, W and A Kalnins (2006) “Social capital, geography, and the survival: Gujarati immigrant entrepreneurs in the US lodging industry”, Management Science, 52(2): 233-247.
Fairlie, R and A Robb (2007) “Families, human capital, and small business: Evidence from the Characteristics of Business Owners Survey”, Industrial and Labor Relations Review, 60: 225-245.
Fairlie, R (2008) “Estimating the contribution of immigrant business owners to the US Economy”, Small Business Administration, Office of Advocacy Report.
Glaeser, E, B Sacerdote and J Scheinkman (1996) “Crime and social interactions”, Quarterly Journal of Economics, 111: 507-548.
Granovetter, M (1973) “The strength of weak ties”, American Journal of Sociology, 78: 1360-1380.
Kerr, S P and W Kerr (2015) “Immigrant entrepreneurship”, NBER Working Paper, Cambridge, MA.
Kerr, W and M Mandorff (2015) “Social networks, ethnicity and entrepreneurship”, NBER, Working Paper 21597, Cambridge, MA.
Kuznets, S (1960) “Economic structure and life of the Jews”, in The minority members: History, culture, and religion, edited by Louis Finkelstein. Philadelphia, PA: Jewish Publication Society of America.
Patel, K and F Vella (2013) “Immigrant networks and their implications for occupational choice and wages”, Review of Economics and Statistics, 95(4): 1249-1277.
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Instinctively it feels right. As an Irishman, I’ve found it interesting that when I’ve lived for times in the UK and USA, I’ve found that as soon as I go down the pub in a new country, the talk always goes to ‘a job down a building site’. Even though I can hardly hammer a nail. Its just the way the network works.
It does raise the question of the potential impacts of technology change on particular ethnic groups – Uber on those Eritrean taxi drivers for example.
The article, if I understand it correctly, reads like “and we found that water is wet.”
I’m Black. I was first generation in college and law school. I was not in a new country , but I may as well have been. I lacked a social network. It hurted me not to know the things no one teaches you.
I’m building a startup now. Same challenges, but I’m better positioned bc I’m now aware the deck is stacked.
My prior experience made me aware of the steering and the skills I don’t know. Awareness of ignorance is not a substitute for social support to provide me the skills or network I will need, but the learning curve is faster.
E.g., hiring a developer for the site and app without technical tech experience has been hard, but having worked on tech project means I inow tech personalities, projects and b.s., which there is a lot of. So the project is moving forward.
All this is to say yes water is wet,the challenges in a new situation is to circumvent them as best one can.
OT. Another example that water is wet: in a company, I was the only black guy until the Latina boss systematically eliminated whites and people of color who were not Latin for other Latinas. At first, I was angry but came to realize this is the way of the world, took severance and moved on
As far as I can tell , the only group not to get this behind closed doors reality are African Americans who try to replicate the fantasies whites feed to them about merit. So social relationships are less valuable.
Not for lack of trying, but I’ve gotten less from black social relationships than white ones. I’ve been reading stuff recently that implies my anecdotal experience may be the experience of a number of black professionals.
This is very interesting to me, Ditto. I come from a country where, like some others in Europe (ex., France, I think), ethnicity is not officially acknowledged. This study would have been impossible to do. Yet, there are differences between social groups and I am very much aware of how social relationships (or lack of) influence access to a first job after college, for example. I watch young people, my nephews, children of people I know, and see how “knowing someone that knows someone” matters tremendously, especially in a country where social networks and unwritten codes are paramount.
The codes are paramount in 2015 America too.
Eg my educational background will open
Some doors.
You can see here the impact of social networks just in the area of employment for Blacks:
http://mobile.nytimes.com/blogs/opinionator/2013/05/05/how-social-networks-drive-black-unemployment/?referer=
http://m.huffpost.com/us/entry/2974805
In fact STEM does not even help:
http://www.usatoday.com/story/tech/2014/10/12/silicon-valley-diversity-tech-hiring-computer-science-graduates-african-american-hispanic/14684211/
That’s just the lie the tech industry throws Out to the “want to believe the lie” public. However, I figured that out along time ago as the hoop jumping kept getting higher and higher until they ran out of technical reasons. It has changed now to my “fit” (e.g., I just interviewed as in house counsel for a startup (got to eat while I build my own ) and they loved me until I showed up Black):
http://www.forbes.com/sites/erikaandersen/2015/03/17/is-cultural-fit-just-a-new-way-to-discriminate/
Add to that my personality is more a Steve Jobs (build my own) than a Carly Fiorina (fail upward by working the bureaucracy, which sadly dominates most businesses), I am better suited for a startup
It’s a challenge. I try not to be delusional like these black people:
http://www.theatlantic.com/business/archive/2015/09/americans-reject-wealth-redistribution/404806/
Trust me this delusional thinking is not unique to the poor:
http://www.lifehack.org/articles/lifestyle/the-law-of-attraction-is-a-dangerous-delusion.html
A lot of Black people read and still follow claptrap like “The Secret.”
I keep it real rather than fake optimism or engaging in magical thinking. I know I can’t do this alone. So I’m building relationships and trying to be smarter than my white counterparts in applying social skills to get what I want.
Something I’ve had to do before. There are no certainties when you lack the right connections. The goal and challenge becomes creating them.
Racism is hardly confined to White America.
It’s most intense in Asia.
Neither Japan, Korea nor China will tolerate immigration. Even an extremely lengthy legal residency will not open the door to citizenship, and that’s that.
India has class and caste ‘issues’ of the first magnitude.
And Silicon Valley is packed with just such immigrants// extended residencies.
The real reason why you would be screened out because of race — is because those in control have already gotten the news: none of their immigrant employees will tolerate Black supervision, Black professionals.
Whenever it’s been tried, the firm folds up… too many talents jump ship … usually with no notice … the fact that they feel shamed and humiliated will not come forth in their exit interviews … if things even get that far.
As for being Black in today’s America: you are living through the biggest up draft in preferrence — across the board — in all Black history. The best estimates put the wealth transfer at $12,000 per annum, per capita… with the highest wealth transfer shifts concentrated in the Black elites — such as yourself.
This is particulaly pronounced in the Federal government and its hangers on. In that circle it’s virtually impossible for anyone to compete with Black professional talent — as a preferrence for them is mandated by Federal regulations and standards.
So, you’re not going with the flow. You need to seek employment with firms that deal with the Federal government — and shun immigrant labor. There are many such firms even in Silicon Valley. They will NOT be start ups.
In such a position you can network until you’ve found like minded go-getters… and make your move at that time.
(The average White native in America loses about $2,000 per annum, per capita, to atone for the sins of English slave importers centuries ago. )
Your post creates the appearance that you are bitter and jaded. If any of that vibe is spotted in Silicon Valley — you are out.
You’ve got it made in the shade — and don’t appear to know it.
For any number of reasons — you want to be hired by a big business.
It’d even be better still if you could be in marketing and sales, but that’s not critical.
The other job that Blacks have a ‘lock’ on is international trade with Africa. There are ALWAYS slots open for fellows that can navigate African and American commerce. A new position will be created out of thin air — just for you — if you show up with the right employers. ( Coca-Cola — and the rest of American agri-business. )
Legal knowledge would be a staggering PLUS.
Do NOT wait for a ‘job opening.’
Create your own job by direct application. That’s how it’s really done.
My post with links to articles and data about blacks plus my talking about building my own company makes me sound bitter and jaded ?
I’m trying to imagine what pragmatic, determined, smart and focused looks like to you. if trying to build a company makes me look jaded and bitter, I must be looking in the mirror wrong.
Your claims about black transfer by the way are false. The largest loses are being experienced by Blacks and Latinos:
http://money.cnn.com/2015/08/17/news/economy/blacks-hispanics-degree-wealth/
You also don’t seem to know anything about the legal matket or my skill sets. The later I can understand but the former not so much.
Finally, I’m going to stick to building my company. I will leave it to you to fret over how the sausage making looks.
If you don’t see it — then, yes, it is invisible.
As for your last citation — Heh. CNN.
Blacks have across the board preferences at all major American universities. This is NOT a slight disadvantage — it’s an epic advantage.
You appear blind to its existence. Whereas it’s long been the talk for two generations.
See the Duke Power case pressed by the Nixon administration. For a time, many Fortune 500 firms — doing Federal business — just stopped hiring Whites, White men, that is. They snapped up EVERY female and every Black American they could.
My own father broke the color barrier at his Fortune 500 employer. At all times prior, the fellow would never have had a shot.
As for the legal market — perish the thought.
A legal education is immensely valuable in SALES across international markets. Such positions pay FAT wages.
If you’re already making it — doubtful based upon your posts — that’s quite fine with me.
As a success, your posts make even less sense.
As for being a minority, generally, I spent most of my professional life as a distinct minority in a location politically dominated — legally dominated — by non-Whites. They were far more racist and exclusionary than anything you face in America today. They were both racists — and proud of it.
I can top any story you’d blush to bring up.
So much for White privilege.
Approving this for the obvious category error, which confuses one individual’s story with the operations of a system.
Thanks Ditto, you can do it
I’m sure there are difficulties you have overcome that were so “dyed in the wool” that you didn’t know they were there!
Sure but the trick that has worked for me is 1. Be objective about what I’m seeing and 2. Adapt quickly. The other trick I’ve learned is detachment so that if things don’t go my way – learn but keep moving even if it’s not with the people exude me
I think for anyone who has tried to break into a profession that is rare among the people the grew up around, this whole “it’s not what but rather who you know” seems pretty bloody obvious. I too was first to go to college, first to go to grad school in my family, and it was a steep learning curve navigating a world of committees and cocktail receptions and what have you, where you actually make the connections you need to be successful as an academic. I also find that people make completely erroneous assumptions about my background based simply on my level of education and field of study. They all think I’m a character from a Woody Allen film, when Winter’s Bone is more on the mark.
That can certainly be a challenge but I find it easier to let them believe what they want
I remember watching Charlie Rose some years ago. He had on a young black Wall Street person on the rising career escalator of Big Money/Big Power. I don’t remember most of what was said and asked. But at some point Rose asked Mr. Onward and Upward if he was encountering any “racism” at his place of employment. He said he was. And here is the example of “racism” that he gave. . . .
. . . . His boss one day said The Firm would like to increase its number of promising and qualified young black employees. So if he knew any people like himself whose abilities he had confidence in, would he send them along to The Firm? And he proudly told Rose about how he got all racially offended that The Firm would dare to ask HIM to do The Firm’s job for The Firm. It was The Firm’s responsibility to go find more diversity. It was racist of The Firm to ask HIM send other young black prospects to The Firm . . . as if he were some kind of servant.
I was too shocked and surprised for words. Any NORmal ethnic person would have JUMPED at a kind offer like that, and sent over as many co-ethnics as he/she plausibly could. The Firm was offering this person to help his whole crew to board The Firm’s ship, and he racial-paranoically rejected The Firm’s offer as some kind of “evidence” of “racism”. I was impressed by the paranoid racial self-pity, and not in a good way.
How many psychiatrists does it take to change a light bulb? Only one. But the lightbulb has to want to change.
Two things come to mind
1. Indoctrination he’s repeating back wgst he had heard from whites and blacks about how merit works and probably had not spent a lot of time breaking the indoctrination
2. Even the executuve carries atiund the baggage that if a black person does what everyone does , that means they are seeking special favors
For a point of comparison see this study
http://abovethelaw.com/2014/04/proof-that-typos-are-racist/
The bias is implicit and it takes a lot clarity to overcome it
One of the best pieces of advice I got was from a European Jewish friend – he said use everything
The guy you described lack the introspection to do exactly that
Lambert -There appears to be a formatting error, or is it intentional that the font changes to headline size in red starting with the section on the model?
Fixes, thanks. Thanks to all for the good discussion despite my clumsy attempt to make it impossible!
Living in Queens thru the ’90’s, we often needed some car repairs, and over by Shea Stadium was a small replica of the third world of body repair shops. We got to know many of these fellows, and our favorite friend was “Mo”, a lawyer from Egypt, He had come to the US via Gulf War associates, and was studying for his NY law degree at night; during the day, he ran a decent auto repair shop. He had many friends who often came by to visit from all over the ME, many of them were also in the repair business, and if Mo couldn’t fix it, then Manny could. I’d be waiting around for my car to be restored, and would get to meet these fellows as well…an amazing and lively network of friends and coworkers who helped each other survive the Big Apple and its burbs…
What about India, Korea, China? Mexico?
It would have helped to know the immigration status of these immigrants. I’ve long suspected that a lot of this type of employment occurs because the employees lack the ability to work legally in the U.S.
The many years I spent in Rhode Island revealed to me the great importance of ethnic/cultural ties, to new immigrants, for survival in the Ocean State. For example, recent Cambodian and Vietnamese immigrants could take advantage of a strong presence in certain sectors of the home rehab business (floor sanding/demolition).
What was fascinating was how this could play out in circumstances where crude color prejudice might be an issue. White Portuguese-Americans, for example, didn’t open up very much to people of color who spoke Spanish (Dominicans), or English (African-Americans descended from slaves brought here by the mid-19th century). Yet very dark-skinned Cape Verdeans (Portuguese-speaking) were welcomed with open arms.
I actually overheard, several times, the phrase: “he’s not black, he’s Cape Verdean.” Proof positive that the whole idea of “whiteness” is completely a cultural concept, having little to do with genetic background.
Nell Irvin Painter’s work on this issue is excellent:
http://www.nytimes.com/2010/03/28/books/review/Gordon-t.html?pagewanted=all&_r=0
Very interesting book, Ulysses. Indeed, race is very much a cultural construction. Sometimes I had to ask my (Californian) husband if someone on TV was black or white (like the mayor of New Orleans at the time of Katrina, for example) because we tend to call white anybody that doesn’t stand out among we, dark skinned Portuguese. And yes, Cape Verdeans are not black, either. :-) And apparently, things are quite confusing in Cape Verde itself: a friend of mine who is living there now, sometimes asks her maid, for fun, what is the race of these or those guests, regardless of the color of their skin, and the answer is often not obvious to her…
Sometimes I think that race is just one of the forms that “we vs them” takes
Some of the groups described in the study are tiny, so their experiences and data generated are particular. Laotians in the USA? We had a Laotian grocery for a while, but it is gone, as is the Laotian restaurant, so our Laotian community must be even smaller.
I live in a neighborhood in Chicago that attracts Ethiopian and Eritrean immigrants, but they are still a small minority, and I’d be hesitant to generalize. As a contrast, there is a cluster of Ethiopian restaurants here, so the community is large enough to support services–and a church. Taxi driving? Hmmm.
That said, years ago, I ran across a study that found that Italian Americans lagged (then) in getting college degrees because family-owned businesses were they main potential employers and offered a good wage. Italians dominated certain odd specialties like laying terrazzo flooring and the remnants of the glazed terra-cotta industry (now defunct). Now, though, the rate of college degrees no longer differs–much change in the last 20 years.
Ulysses points out a limiting factor: Language. Certain groups that are resistant to learning English, such as Polish and Lithuanian immigrants, limited their choice of employment. When nativists complain about Spanish-speaking immigrants, I’m reminded of my own extended families with the busia or two who just never got around to learning English. The Ethiopians in my neighborhood uniformly speak English, which they would have learned at school in Ethiopia–and one immigrant and I speak Italian, because of her high-school years in Italy.
And the comment on race being cultural is pointed up by the attitudes of the Portuguese-speaking world. Too bad that there is so little interest in matters Luso in the U S of A.
I wish I knew more about that. There seems to be tones of studies on the anglo angle and, as far as I know, a lot less on the luso angle (maybe I just can’t find it easily on the internet).
There is more controversy about race in Brazil. Have you ever read Tropical Truth by the singer Caetano Veloso? I’m not sure of its title in Portuguese. Gilberto Freyre also wrote about the construction of race in Brazil: Casa-Grande e Senzala (and other books thereafter).
Also good in describing race in the Luso world: The director Augusto Boal, who was born in Rio of parents who were Portuguese. His memoir is called Hamlet and the Baker’s Son in English.
I don’t think I ever read Casa Grande e Sanzala, although I remember my parents had it at home. And I’m curious about Augusto Boal’s book.
I was raised in Africa and I have the feeling that “race” is a quite different thing there (and in Portugal) than in Brazil.
This is the fundamental question of democratic society. It’s not unique to immigrants. The primary predictor of a child’s social status is the social status of the parents.
The question is, do we want society to work that way? Or do we want a different organizing philosophy, one based more on merit and hard work than inheritance and class?
neither, I mostly want more equal outcomes
Yeah, that’s where there is actually interesting discussion to happen, which is why there is so much obfuscation preventing the real matter from being discussed.
Personally, I am very uncomfortable emphasizing equal outcomes because that is built upon the premise that personal preferences themselves do not vary meaningfully from one individual to the next. I think there actually is a lot of variance in how we humans evaluate choices and that this diversity is one of our strengths rather than something to fear. But of course the danger of emphasizing merit and choice too much to the exclusion of considering outcomes is to blind oneself to systemic discrimination.
After all, a choice made under coercion is not a choice at all.
I’m uncomfortable with an “equal outcomes” perspective too (but then I would be; meritocracy worked well for me, to a point).
However, the alternative is the “level playing field” model, and it seems very clear to me that the playing field has been so gamed and corrupted that we can’t trust it. So some sort of baseline for outcomes needs to be put in place. To me, the obvious way to get around the personal preferences issue is to look to Maslow’s Hierarchy, and provision concrete material benefits that all share.
While looking for information about ethnicity in the Luso world (which is necessarily connected to slavery, I think), I came across a lot of things about religious “brotherhods” (that were, and still are, quite important in the life and death of brothers, namely providing burial, etc). And I got curious: was there any connection between slavery and some religious practices in the US?
1. Are there some traits that distinguish immigrants who left their home countries from those who stayed (the natives in their native countries)? Do these trait contribute, partly, to making them more likely to be self-employed?
2. Why are the natives in the immigrants’ new country less likely to be self-employed?
3 Compared with the decades-long wage stagnation, are self-employed entrepreneurial profits stagnant as well or going up (or down)? Should we also be concerned about stagnant self-employed entrepreneurs?