Immigrants in Italy who live in neighbourhoods with a large share of non-Italians are significantly less likely to be in employment than their counterparts in less segregated parts of the city. That is one of the findings of new research by Professor Tito Boeri and colleagues, published in the August 2015 issue of the Economic Journal. What''s more, their study finds, the negative effect of a large migrant share on employment is magnified by the presence of illegal immigrants in the neighbourhood.

The researchers comment on the policy implications of their research:

''First of all, our findings suggest that housing policies should be focused on reducing the concentration of immigrants in cities.''

''A second, and perhaps less obvious, implication is that illegal status – and the concentration of individuals with illegal status – may impose a very high toll on the employment prospects of both legal and illegal immigrants. Having a large share of illegal immigrants in a country may also hurt migrants with legal status.''

Do immigrants benefit from living in neighbourhoods with a high proportion of non-natives? This research explores the effects of the residential concentration of immigrants on their employment prospects.

To address the question, the analysis is based on a new and unique survey carried out in 2009 in eight cities in northern Italy, which is able to identify respondents'' exact residential location. What''s more, thanks to a sampling strategy designed ad hoc, the data cover both legal and illegal immigrants.

The analysis shows that migrants who live in areas with a large share of non-Italians are less likely to be employed, compared with immigrants who reside in areas with a lower concentration of immigrants. Such a reduction in employment opportunities is remarkable: a 1% increase in the share of immigrants residing in a city block reduces the probability of being employed by two percentage points.

To establish a causal link between employment opportunities and block characteristics, residential location choices should not capture unobservable factors that may influence job market prospects. For example, low ability migrants may be forced to live in highly segregated neighbourhoods – or the availability of public transport in some neighbourhoods may facilitate employability.

To address this issue, the researchers use an ''instrumental variable'': an observable neighbourhood characteristic that explains residential location, but is not directly related to employment opportunities.

Specifically, they use the building structure of the city block 10 years before their survey, by linking their data with the Italian population census. The ratio of residential square metres per residential building in the block is their instrumental variable: it will be high in areas with large buildings, and low in areas with detached or semi-detached houses.

The researchers'' strategy relies on discrimination in the housing market: migrants face more obstacles than natives in finding accommodation. If discrimination is motivated by preferences, then it means that natives, who are the vast majority in the supply side of the labour market, dislike close interactions with migrants. This implies that they will be more willing to rent or sell homes in areas where close interactions between natives and immigrants are less likely to take place.

The main result – which is identified for the subgroup of immigrants whose choice of residential location is related to discrimination in the housing market – can be summarised as follows: if the share of migrants in a block were to rise from 15% to 25%, the employment rate of these migrants would fall from 88% to as low as 68%.

There are several mechanisms that could link migrants'' share in a block to employment opportunities. First of all, residents of ''ghettos'' can be discriminated against in the labour market.

On the other hand, neighbourhoods with a high share of migrants might be viewed as ''launching pads'' because they may be helpful in building a network that can be useful in job search. But a high share of immigrants may impose negative ''congestion externalities'' if the job market is too crowded: in that case, a large share of illegal immigrants may displace workers from the informal hiring process, which is the only one illegal immigrants to which have access.

While the data do not make it possible to distinguish which particular mechanism is behind the findings, the researchers conclude that there is little evidence of ''redlining'' or neighbourhood-based discrimination in the labour market, since the results do not hold for Italians. The congestion externality hypothesis is instead supported by the fact that the negative effect of a large migrant share on employment is magnified by the presence of illegal immigrants in the block.

''Immigration, Housing Discrimination and Employment'' by Tito Boeri, Marta De Philippis, Eleonora Patacchini and Michele Pellizzari is published in the August 2015 issue of the Economic Journal. Tito Boeri is at Bocconi University. Marta De Philippis is at the LSE. Eleonora Patacchini is at Cornell University, Sapienza University of Rome and EIEF. Michele Pellizzari is at the University of Geneva.