Social Networks and Economic Outcomes: Evidence from Refugee Resettlement Programs

Federal law requires that refugee resettlement locations should be decided by the federal government in consultation with state and local governments. The federal government currently works with nine agencies to provide assistance to refugees throughout the resettling process. These agencies, jointly with their local affiliates, determine the best locations for the newly arrived refugees. The settlement decisions are typically driven by factors such as the number of refugees already present in the community and family reunification motives. Other indicators that describe the community's capacity to absorb refugees are also taken into account. The latter includes availability of affordable housing, health and educational services, and employment opportunities.

From 2001 to 2016, approximately 890,000 refugees were admitted into the United States. Eight states received almost 50 percent of the total number of refugees in that period. California and Texas are by far the two largest refugee hosting states, receiving 11.5 percent and 9.1 percent, respectively, of total refugees. The list continues with New York, Florida, Minnesota, Washington, Arizona, and Michigan, each state accounting for about 4 percent to 6 percent of the total number of refugees. (See chart below.) In the Fifth District, North Carolina has hosted about 3 percent, while Virginia and Maryland have received about 2 percent of total refugees during the period. The percentages for South Carolina, West Virginia, and Washington, D.C., are negligible.

The assignment of refugees across cities within each of the states in the Fifth District that have hosted the largest number of refugees widely differs during 2001-2016. (See table below.) In Maryland, almost half of the refugees resettled in the state have located in Baltimore, while the assignment of refugees in North Carolina and Virginia seems to be more dispersed across cities. Charlotte (with almost 27 percent) and Richmond (with 17 percent) attract the highest proportion of refugees in North Carolina and Virginia, respectively, but they are followed in each case by Greensboro (17 percent) and Charlottesville (13.7 percent). 

Occasionally, state and local officials have opposed the resettlement in their districts. For instance, a number of state government officials have recently indicated they will not allow the settlement of Syrian refugees in their states. It should be noted, however, states that have historically accepted large number of refugees (such as California, New York, Washington, and Pennsylvania, among others) have assured their continued participation in resettlement programs. Moreover, there seems to be conflicting opinions declared by state governors and city officials. In fact, many cities in states that oppose the new admission of refugees advocate for a higher participation in resettlement programs and welcome even larger number of refugees into their cities.

Further opposition to refugee resettlement has recently emerged at the federal level. President Trump has sought to suspend the admission of refugees; at press time, the legality of that measure is a subject of litigation.

Neighborhood Effects on Labor Market Outcomes

Part of the literature on refugee resettlement focuses on how the characteristics of the community affect labor market outcomes for newly arrived refugees. Immigrants, and particularly refugees, tend to concentrate in certain areas and reside in enclaves. Such location decisions may have both positive and negative implications regarding labor market outcomes. On one hand, labor market prospects may improve because individuals may share information about job opportunities with other network members more effectively. On the other hand, living in an enclave may reduce the incentives to acquire certain required skills (for example, the development of language skills) to become fully integrated into the host's labor market.

Early work by Per-Anders Edin and Olof Aslund of Uppsala University and Peter Fredriksson of Stockholm University examined which of these two effects tends to dominate. In a 2003 article in the Quarterly Journal of Economics, they looked at the extent to which ethnic concentration in a city affects earnings of refugees from the same country of origin residing in those areas. They used data from a refugee settlement program implemented in Sweden between 1985 and 1991. The conclusions of their analysis suggested that as the size of the ethnic concentration rises, earnings increase as well. In fact, they showed that earnings increase more for low-skill individuals.

Yet their results indicated that the effect on earnings actually depends on the “quality” of the enclave: Individuals who belong to an ethnic group with higher earnings or higher self-employment rates have a higher return from residing in the enclave. Those who belong to enclaves that have a lower than average level of earnings may actually experience a negative impact on earnings.

More recent work by Anna Damm of Aarhus University investigated a similar issue using data on a refugee resettlement program in Denmark. Her main objective was to examine whether residing in a deprived neighborhood negatively affects labor market outcomes for refugees. In a 2014 article in the Journal of Urban Economics, she found that after accounting for residence sorting, such an effect is nonexistent. Her work concluded, along the same line as Edin, Fredriksson, and Aslund, that the quality of the network, rather than its size, is more important for explaining individuals' labor market outcomes. In fact, the probability that a newly arrived refugee finds a job improves as the employment rate among co-nationals who reside in close proximity is higher.

Lori Beaman of Northwestern University provides an alternative view in which the effects of a larger network might depend on the specific structure and composition of the network. Beaman developed a model that captures how information is transmitted through the network. She used data from refugee programs administered by the International Rescue Committee that assigned refugees across various cities in the United States during the period 2001-2005. When examining the labor outcomes for recently arrived refugees, she found that their labor market outcomes (described mostly by the probability of employment and the level of wages) tended to be worse when the number of network members resettled in the same year or one year prior is larger.

Beaman found, however, that the outcomes are better for newly arrived refugees when they interact and participate in networks with a larger number of members with longer tenure in the United States. One possible interpretation of this result is that newly arrived refugees compete for the same type of jobs with other refugees that have recently relocated into the United States. As a result, this latter group might not find it beneficial to share and transmit information to the newly arrived refugees about job opportunities through the network. On the other hand, more tenured members, typically members who already have an established job, would feel less threatened by the arrival of new refugees, and they would behave more cooperatively.

Neighborhood Effects on Education and Criminal Behavior

Other work focuses on different aspects of neighborhood effects, such as their impact on education outcomes and the likelihood of engaging in criminal activities. In a paper published in the American Economic Journal: Applied Economics in 2011, Aslund, Edin, Fredriksson, and Hans Gronqvist found that the “quality” of the network connections helps to explain the education performance of refugees, in line with the conclusions of their previous research that focused on labor market outcomes. Specifically, their work showed that education outcomes, measured by students’ school grades, improve when the proportion of highly educated peers in the same local ethnic group is higher. They also showed that the positive effects are more important for those kids who arrived in the neighborhood when they were younger (less than 7 years old).

Research by Anna Damm and Christian Dustmann of University College London studied the connection between the level of crime at the neighborhood level and the probability of individuals later engaging in criminal activities. They concluded, using data from the refugee settlement program implemented in Denmark, that the exposure to neighborhood crime during childhood influences the criminal behavior of individuals as adults. More precisely, they found that as the percentage of convicted criminals residing in a neighborhood rises, it becomes more likely for male refugees assigned to that neighborhood to engage in crime later in life. This effect is not observed for females, though.

Effect of Refugee Dispersal Policies on Earnings

Some countries, such as the United Kingdom, Germany, and Sweden, follow strict settlement policies that restrict the locations where newly arrived refugees can reside. One of the main goals of those polices is to reduce the concentration of refugees in a small number of densely populated cities. This objective is presumably based on the idea that higher concentrations of refugees in an area may reduce the level of integration and assimilation of immigrants.

Moreover, it has been claimed that refugees tend to impose, at least initially, a heavy fiscal burden on recipient cities. A discussion paper from the Brookings Institution prepared by Bruce Katz, Luise Noring, and Nantke Garrelts reviewed the recent refugee experience in Europe. The report highlighted the fact that refugees often dispropor­tionally locate in a small number of cities. Such a settlement pattern has created important local fiscal imbalances, since the cities ultimately bear the cost of educating and integrating the newly arrived refugees into their communities. Refugee dispersal policies may be viewed as a way of spreading out and sharing the fiscal burden among several localities.

A few papers that evaluate the effectiveness of refugee policies suggest, however, that dispersing refugee immigrants across cities may have a detrimental effect on refugees. Edin, Fredriksson, and Aslund, in a 2004 study, found that settling refugee immigrants away from denser areas results in an important long-run earning loss for those immigrants. The goal of dispersing refugees, they concluded, is attained at a significant cost for the refugees, hurting their ability to become self-sufficient.

Many countries are making a great effort to deal with the rising number of displaced individuals around the world. Understanding the factors that determine the long-run outcomes of refugees, including their self-sufficiency and degree of integration in the host country, is key to evaluating the effectiveness of refugee resettlement programs. The academic research reviewed above may provide some guidelines on how to design and implement these policies.