Immigrants' Legal Status and Firms: Evidence from the 2007 EU Enlargement

We study how firms and workers adjust when previously restricted migrants gain full and portable work rights in a labor market with substantial informality. We exploit the 2007 EU accession of Bulgaria and Romania, which granted unrestricted work rights to Italy's largest migrant group. Using matched employer–employee administrative data and an IV-DID design, we find that firms suddenly and persistently shift employment composition toward EU07 workers, compressing the native employment share without reducing native hiring or increasing separations. We don't detect any significant change in wages for either natives or EU07 workers. For migrants, this null effect reflects offsetting compositional shifts as newly observed and incumbent EU07 workers enter the formal workforce with different wage trajectories. Consistent with a shift in bargaining power toward workers, EU07 migrants experienced significant gains in job mobility and job security. Overall, the evidence suggests that removing legal restrictions reshaped firms’ personnel choices and altered migrants’ employment relationships, improving their outside options, bargaining position, and access to more secure jobs.