Do Immigrants Take or Create Residents’ Jobs? Evidence from Free Movement of Workers in Switzerland*

• DOI: http://doi.org/10.1111/sjoe.12293
• Published date: 01 July 2019
• Author: Michael Siegenthaler,Christoph Basten
• Date: 01 July 2019

Scand. J. of Economics 121(3), 994–1019, 2019

DOI: 10.1111/sjoe.12293

Do Immigrants Take or Create Residents’

Jobs? Evidence from Free Movement of

Workers in Switzerland*

Christoph Basten

University of Zurich, CH-8032 Zurich, Switzerland

christoph.basten@bf.uzh.ch

Michael Siegenthaler

KOF Swiss Economic Institute, ETH Zurich, CH-8092 Zurich, Switzerland

siegenthaler@kof.ethz.ch

Abstract

In 2002, Switzerland began to adopt free movement of workers with the European Union. We

study the effects of the resulting immigration waveon resident workers. We focus on the level of

national skill groups and propose an instrumental variable approach to address the endogeneity of

immigration in this setting. Mostly relying on administrative data for the 2002–2011 period,we

find that the immigration of foreign workers reduced unemploymentof residents, and had limited

adverse effects on their wages and employment. One reason for this is that younger residents

changed to more demanding jobs as a response to the arrival of immigrants.

Keywords: Free movement of people; labor market effects of immigration; occupational

specialization; shift–share instrument; unemployment

JEL classification:F22; J21; J61

I. Introduction

Do immigrants crowd out resident employees or do they fill gaps in

the resident workforce, thus raising the productivity and job chances

of residents? This question is of great policy relevance and is often

controversially debated. Our paper adds to the empirical literature on this

topic by examining the effects of immigration in Switzerland in the period

of introducing free movement of workers with the European Union (EU).

The principle is the cornerstone of the migration policy of the EU (Bertola

et al., 2015), and it allows EU citizens to move freely within the territory of

*We thank Amelie F. Constant, Jennifer Hunt, Daniel Lampart, Christoph Moser, Gianmarco

Ottaviano, Giovanni Peri, George Sheldon, Jeffrey Wooldridge, two anonymous referees, and

variousseminar par ticipants for very helpful comments. M. Siegenthalerg ratefullyacknowledges

financial support from the Swiss National Science Foundation (SNSF).

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The editors of The Scandinavian Journal of Economics 2018.

C. Basten and M. Siegenthaler 995

member states for the purpose of employment. Opposition to this principle

has grown stronger in many European countries in recent years. Populist

right-wing parties that demand the restriction of the free movement of

workers have gained voter shares in several European countries (Bertola

et al., 2015). In fact, the principle figured prominently in the debate about

Brexit. In Switzerland, the controversy culminated in the acceptance of

a referendum demanding the reintroduction of quotas on the number of

immigrants per year. Against this background, a better understanding of

the potential costs and benefits of the free movement of workers is central

for European policy-makers who try to weigh the economic benefits of the

principle against its potential negative side effects.

Switzerland introduced the principle of free movement of workers after

reaching an agreement with the EU and European Free Trade Association

(EFTA) member states in 1999. The agreement led to the gradual – but

eventually complete – abolition of all prior legal restrictions on hiring

and employing immigrants and cross-border workers in the country. In the

process of the introduction, Switzerland abolished a bureaucratic admission

process that had been in place previously, extended the durations of

different residency permits, and abandoned prior quotas on immigration.1

In the period following the reform, the country experienced a surge in

immigration, as Figure 1 illustrates. After a decade with relatively low

immigration rates, the country’s share of foreign born in the total population

increased from 23.1 to 28.3 percent between 2003 and 2013, mainly due

to immigration from neighboring EU countries.

We study the consequences of this immigration wave on the resident

workforce. To this end, we relate the number of newly arrived immigrants

into labor market cells, defined by occupational categories (e.g., “managers”

and “professionals”) and experience, to the labor market outcomes of

residents in these skill cells. Because of the small scale of Switzerland, we

follow Friedberg (2001) and Borjas (2003), and we define these cells at the

national level rather than at the level of local labor markets.2In contrast to

these prior studies, we address the concern that skill groups in high demand

by employers might attract more immigrants. This could give rise to a

coincidence of good labor market prospects both for residents and for newly

arrived immigrants in skill groups in which we observe high immigrant

inflows, which one might mistake for evidence of complementarity between

immigrants and residents.

1See Online AppendixA, Beerli and Peri (2015), and Ruffner and Siegenthaler (2016) for more

extensive discussions on the changes brought about by this reform.

2See Peri (2016) and Dustmann et al. (2016) for recent overviews of the literature on the labor

market effects of immigration.

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The editors of The Scandinavian Journal of Economics 2018.