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Labor Supply Shock and Firm Innovation: Evidence from EU Enlargement

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  • Maczulskij, Terhi

Abstract

This study examines the effects of the 2004 European Union enlargement on firm productivity and innovation in Finland. Using linked employer–employee and firm-level data, the analysis exploits increased access to workers from the ten new EU member states (EU10). To address the endogenous geographic distribution of immigrants, I construct an instrumental variable based on historically predetermined migration patterns. The results show that increased EU10 employment raises firm labor productivity, the probability of having a granted patent, and STEM employment, while effects on other innovation outcomes are more limited. The responses also differ across sectors. In manufacturing, EU10 employment increases process innovation but reduces STEM employment, whereas in services it increases labor productivity and the probability of having granted patents. Overall, the findings suggest that immigration-induced labor-supply changes can improve firm performance and affect selected dimensions of innovation, with the effects varying across sectors and innovation margins.

Suggested Citation

  • Maczulskij, Terhi, 2026. "Labor Supply Shock and Firm Innovation: Evidence from EU Enlargement," ETLA Working Papers 145, The Research Institute of the Finnish Economy.
    • Handle: RePEc:rif:wpaper:145
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    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • F22 - International Economics - - International Factor Movements and International Business - - - International Migration
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General

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