Diversity and Employment Prospects: Neighbors Matter!

This paper aims at determining whether and how the level of origins' diversity of a community affects its members' employment prospects. Relying on detailed data from the French Labor Force Survey, we measure diversity at two geographic levels: the neighborhood and the local labor market. The correlation between diversity and employment varies accordingly: it is negative at the former level but positive at the latter level. We then tackle the endogenous location selection issue in two ways. First, we rely on a standard instrumental variable approach to deal with diversity at the local labor market level, and propose a new instrument: diversity in the public housing sector. After correcting for endogeneity, the positive effect of diversity at this level is driven down to zero, revealing that it was mostly due to self-selection. Second, regarding neighborhood diversity, we adopt the strategy developed by Bayer, Ross and Topa (2008) which takes advantage of the very precise localization of the data. The negative effect of diversity on employment at the neighborhood level is reinforced. We also show that diversity in terms of nationalities (a proxy for cultural diversity) matters more than diversity based on parents' origins (a proxy for ethnic diversity). These results reveal that local diversity may act as a barrier to communication, preventing job information transmission, and hence reducing employment prospects.