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

Abstract

We study how a reform that granted EU workers free access to the Swiss labor market affected Swiss firms. Our firm-level Differences-in-Differences estimations exploit the fact that the reform incidentally affected firms close to the border more strongly. We find that the reform increased employment, the skill intensity, and sales of incumbent firms, especially in firms that relied heavily on foreign workers and that suffered from skill shortages before the reform. In these firms, the reform also increased labor productivity. We explain these effects through higher innovation performance of incumbents and the reallocation of economic activity into highly affected regions.

Keywords: Skilled immigration, immigration policy, free movement of persons, immigration restrictions, firm performance, labor mobility, firm relocation

JEL Classification: J22, J61, F22