How do Firms Adjust to a Negative Labor Supply Shock? Evidence form Migration Outflows

95 Pages Posted: 11 Feb 2022

Date Written: February 4, 2022


This paper studies adjustments of Italian firms to negative labor supply shocks in the context of workers’ outflows from Italy to Switzerland. My diff-in-diff leverages a policy in which Switzerland granted free labor market mobility to EU citizens and different treatment intensity of Italian firms based on their distance to the Swiss border. Using detailed social security data on the universe of Italian firms and workers, I document large (12 percentage points higher) outflows of workers and fewer (2.5 percentage points) surviving firms in the treatment group relative to control. Despite replacing workers and becoming more capital intensive, treated firms are less productive and pay lower wages. In line with the brain drain literature, I show how adverse effects of large outflows of workers operate through firms that workers leave. I provide suggestive evidence that highskill intensive firms are the main driver of the negative results on wages and productivity. Low skill intensive firms instead suffer less from losing workers and provide new job opportunities for the workers who do not migrate.

Keywords: migration, labor supply, skills, firms

JEL Classification: F22, J22, J24, J61

Suggested Citation

Dicarlo, Emanuele, How do Firms Adjust to a Negative Labor Supply Shock? Evidence form Migration Outflows (February 4, 2022). Bank of Italy Temi di Discussione (Working Paper) No. 1361, Available at SSRN: or

Emanuele Dicarlo (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184

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