The Effect of Ethnic Clustering on Immigrants' Earnings

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This Research Insight provides information on ethnic neighborhood — or enclave — to support policymakers in the design of public policies. An ethnic enclave is a neighborhood where most residents belong to a visible minority group.

This information is important for 2 main reasons:

There is strong evidence that the degree of social interactions has an impact on an individual's labour market outcomes. This is likely to happen through the referral effect and impact housing affordability.
Ethnic clustering is a well-established characteristic of immigration in Canada. Understanding the impact of ethnic enclaves on newcomers’ labor market and housing outcomes is key in designing housing policies. Specifically, policies aimed at improving the social and economic inclusion of this population.

This study examines the effects of living in an ethnic enclave on the earnings of recent immigrants to Canada.

Author:: CMHC
Document Type:: PDF
Date Published:: April 27, 2022

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Our objective is to learn more about the implications and impacts of living in an ethnic enclave

The goal of this study is to answer the following questions about ethnic enclaves.

What are the effects of living in an ethnic enclave on the earnings of recent immigrants to Canada?
What are the implications of living in an ethnic enclave on their ability to afford housing that meets their needs?

This will reveal whether and how, in the context of the National Housing Strategy, the ethnic composition of the neighborhood should be taken into account. Either when it comes to:

decisions on where to build new affordable housing units
the allocation, to eligible households, of affordable housing renewed with National Housing Strategy funds

This study also contributes to the literature on the ‘immigrant-Canadian-born’ wage gap. It does so by highlighting how ethnic-related social interactions at the neighborhood level impact this wage disparity.

Newcomers (including refugees) are one of the National Housing Strategy priority populations who experience housing need and related vulnerabilities.

Approach used Census and Canadian Employer-Employee Dynamics Database data

We used data from the 2006 Census to identify and classify census tracts from Montréal, Vancouver and Toronto census metropolitan areas.

We computed the total population and the population of individuals belonging to a visible minority group as defined in the Census. An ethnic enclave is then defined as a census tract with more than 50% of its population composed of individuals identifying as visible minorities.

We also used data from the 2017 Canadian Employer-Employee Dynamics Database to track average annual earning differences.

Findings and implications

There are more ethnic enclave neighborhoods in Vancouver and Toronto compared to Montréal.
Newcomers who landed in ethnic enclave neighborhoods typically earn less to other newcomers who landed in non-ethnic-enclave neighborhoods.