The Labor Market Effects of Opening the Border: Evidence from Switzerland

Between 1999 and 2004 Switzerland opened its border region (BR) to cross-border workers (CBW), who are foreign residents commuting to Switzerland for work. In this paper, we exploit the timing of implementation and the fact that CBW commute almost exclusively to municipalities close to the border to estimate the effect of this policy on foreign labor supply and on native labor market outcomes, using a difference-in-difference approach. We find that opening the border to CBW increased their employment within 20 minutes of commuting time from the border by four to five percentage points. The increased inflow was constituted of highly-educated workers and it was associated with an increase in wages for highly-educated Swiss workers. Native highly-educated workers became more likely to fill top managerial positions after the liberalization. Moreover, we find increases in wages, employment and firm-creation, especially in high-skilled manufacturing and knowledge-intensive services, which help explain the positive wage effects of CBW on high skilled natives.