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From Labor to Cash Flow? The Abolition of Immigration Restrictions and the Performance of Swiss Firms

What is the effect of opening the labor market to foreign workers on the success of firms? We address this question by analyzing how firms in Switzerland were affected by the introduction of the free movement of persons with the European Union (EU) countries. This immigration reform granted all EU workers free access to the Swiss labor market. Our firm-level panel data models exploit the exceptional facts that the reform incidentally affected firms at different time periods and had a stronger effect on firmsclosetotheborder. We find that the Reform increased employment, skill intensity, and sales of incumbent firms, especially for those that relied heavily on foreign workers and had reported that they suffered from skill shortages before the reform. In these firms, the reform also increased labor productivity. We explain these effects through the higher innovation performance of incumbent firms and the reallocation of economic activity into highly affected regions, as evidenced by the entry of new establishments and by the changes in establishment size within multi-establishment firms.

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File URL: http://dx.doi.org/10.3929/ethz-a-010821915
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Paper provided by KOF Swiss Economic Institute, ETH Zurich in its series KOF Working papers with number 16-424.

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Length: 73 pages
Date of creation: Dec 2016
Handle: RePEc:kof:wpskof:16-424
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  1. Giovanni Peri & Kevin Shih & Chad Sparber, 2015. "Foreign and Native Skilled Workers: What Can We Learn from H-1B Lotteries?," NBER Working Papers 21175, National Bureau of Economic Research, Inc.
  2. Jeffrey M Wooldridge, 2010. "Econometric Analysis of Cross Section and Panel Data," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262232588.
  3. William R. Kerr & William F. Lincoln, 2010. "The Supply Side of Innovation: H-1B Visa Reforms and U.S. Ethnic Invention," Journal of Labor Economics, University of Chicago Press, vol. 28(3), pages 473-508, 07.
  4. Bosetti, Valentina & Cattaneo, Cristina & Verdolini, Elena, 2015. "Migration of skilled workers and innovation: A European Perspective," Journal of International Economics, Elsevier, vol. 96(2), pages 311-322.
  5. William R. Kerr, 2013. "U.S. High-Skilled Immigration, Innovation, and Entrepreneurship: Empirical Approaches and Evidence," NBER Working Papers 19377, National Bureau of Economic Research, Inc.
  6. William W. Olney, 2013. "Immigration And Firm Expansion," Journal of Regional Science, Wiley Blackwell, vol. 53(1), pages 142-157, 02.
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