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Why immigrants tend to cluster in certain industries

Monday, February 1, 2016

Immigrants to American cities often tend to work in specific industries, divided along ethnic lines. From Indian motel owners to manicurists from Vietnam, these ethnic clusters affect both immigration and economic patterns in the United States. In a recent paper, William Kerr, a professor at Harvard Business School, explains why such clusters happen and their impact on the greater U.S. economy.
Reasons that immigrants could be forced into certain industries include discrimination or higher barriers of entry in other economic sectors, such as certifications or specific levels of education. Such barriers can be difficult for an immigrant to surmount, particularly if lack of English proficiency can be an obstacle. One example that Kerr cites is cab drivers. Most large U.S. cities have a “taxi cab industry dominated” by a single ethnic group.
Another factor that contributes to clustering is socialization. Immigrants are often active in supportive expat social networks. This can be a competitive advantage over U.S.-born citizens because such networks can help newer immigrants find jobs or even start businesses by through mentorship or assistance with regulatory processesand business strategy.
Kerr’s study used census data to cross-reference ethnicity with employment data to identify the primary industry clusters for given ethnic groups, e.g. gas stations for Punjabis, or grocery stores among Yemenis. The study also used the likelihood of intermarriage as a measure of social concentration. For example, Canadian immigrants are about as likely to marry a U.S.-born citizen as another Canadian. Meanwhile, Eritrean immigrants practically never marry outside their immigrant group.
The smaller and more concentrated ethnic groups are two and half times more likely to cluster in the same industry in their cities. Interestingly, the study found, every additional percentage point of social concentration resulted in a 0.6 percent increase in overall income. From this, Kerr was able to conclude, “If your group is concentrated, you are making an extra premium over what others in the industry are making, and over what other broadly self-employed people are making… This is a situation in which the more we find [immigrant groups] working together in a particular sector, the more they are earning overall.”
These findings underscore how important immigration and immigrants groups are for driving entrepreneurship and creating jobs in the U.S. The results of the study also support the notion that permitting larger numbers from certain ethnic groups to enter the United States at the same time does not create an economic burden. On the contrary, in the long term, clusters of immigrants are drivers of economic growth. 

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