The Return to Big City Experience: Evidence from Danish Refugees

The authors exploit the random settlement policy for refugees in Denmark between 1986-1998 to examine the effect of locations on refugees’ wages. During this period, the Danish government assigned 80,000 refugees across 271 municipalities, in proportion to local populations and without regard to labor market relevant characteristics of refugees. Eighty percent of refugees were still living in their assigned location after 20 years. Settled refugees initially earned similar hourly wages across regions, but those placed in Copenhagen saw their wages grow 0.81 percent faster, equivalent to a 16 percent wage premium after 20 years. The authors identify two mechanisms for this result: (a) the greater density of high-productivity, high-wage paying firms in Copenhagen allows refugees to accumulate more experience with these types of employers; and (b) Copenhagen offers relatively greater opportunities in skilled service jobs and fewer opportunities in manual and agricultural jobs compared to the rest of the country. Most refugees start in low-skill service jobs (e.g. cleaning and sales), and then, move onto higher paying occupations, which differ by location. Outside Copenhagen, refugees are more likely to move into manual jobs, whereas Copenhagen workers are more likely to move into high-skill jobs. The authors were able to dismiss several other mechanisms, including separate wage trends between locations, the effects of ethnic enclaves, and variation in educational take-up across locations. Finally, the authors explore the possibility that assignment to a big city has differential effects conditional on ability, which manifest in the more frequent matching of high-ability workers with high-productivity firms, and decreased job finding rates for low-ability workers. They find that this sorting was significant in explaining the observed patterns, accounting for more than 50 percent of the dynamic experience premium.