In this paper, I look at investments in bonding and bridging social capital in relation to local labour market conditions. I develop a theoretical model where immigrants form their social capital in consideration of job search and their neighbourhood environment. A structural model is derived and empirically tested in the case of the Netherlands. The main conclusions from the research are threefold: (i) a higher job arrival rate leads to more bonding, less bridging, and the choice of more ethnically segregated areas; (ii) A larger wage difference between the ethnic labour market and the host labour market leads to more bonding, less bridging, and the choice of more ethnically segregated areas; and (iii) a higher preference for co-ethnic neighbours leads to more bonding, less bridging, and the choice of more ethnically segregated areas.

Field: Spatial Economics