Do Enclaves Help or Hinder the American Dream

A sizable proportion of United States Hispanics live in segregated communities. The rising Hispanic population in the United States and the negative association of enclave-residence with earnings have given rise to the concern that a large part of the current and future labor force, native and immigrant Hispanics, may struggle to improve social mobility and integration into the mainstream United States population. However, the causal effect of enclave-residence on earnings of Hispanics in the United States remains an open question given that previous studies have not addressed the non-random distribution of individuals into and out of enclaves. Using a longitudinal data set I address the non-random location decision of individuals to identify a causal link between enclave-residence and earnings of Hispanics. I find a much larger negative impact of enclave-residence on earnings than previous studies. However, the results also show that enclave-residence is associated with longer durations of employment. Second generation immigrant Hispanics appear to be immune from the wage penalty that is associated with enclaves.