Local labour demand and immigrant employment

This study investigates the effect of local labour demand on employment of immigrant workers. We address the challenge of location sorting by estimating the effects of initial local labour demand for refugees who were subject to the Danish Spatial Dispersal Policy from 1999–2010. After location assignment, refugees participate in a 3-year introduction programme; eligibility to means-tested welfare benefits during programme participation is conditional on residing in the assigned municipality. We use full population Danish administrative registers that contain information on admission class of immigrants and identify refugee status without any measurement error. Our findings show that four years after assignment, 83% of refugees still live in the assigned municipality. Moreover, assignment to a municipality with a one percentage point higher employment rate increases the employment probability of refugees by 0.5–0.6 percentage points (elasticities 1.1–1.8) two to four years after arrival in Denmark. We also find consistent significant effects of alternative measures of local labour demand on employment chances of refugees. Our results provide quasi-experimental evidence that immigrant employment is sensitive to labour market conditions in the initial location and highlight the importance of carefully designing refugee allocation policies.