Regulating Labor Immigration: The Effects of Lifting Labor Market Testing

Jeremias Nieminen (), Sanni Kiviholma, Ohto Kanninen () and Hannu Karhunen ()

No 352, Working Papers from Työn ja talouden tutkimus LABORE, The Labour Institute for Economic Research LABORE

Abstract: Labor market testing (LMT) requires firms to demonstrate there are no local work-ers available before hiring an immigrant. We examine the effect of removing LMT requirements for non-EU workers in Finland utilizing regional and temporal vari-ation in occupations exempted from LMT. We combine individual and firm-level administrative data with hand-collected information on local changes in labor market testing rules and apply a staggered difference-in-differences research design. We find that removing the LMT requirement increases the inflow of non-EU workers to treated occupation-region cells. This is mainly driven by non-EU individuals already in Finland. Five years post-treatment, the negative earnings effect is 2 % at the occupation-region level and 4% for incumbent workers at the individual level, more pronounced in low-wage and service-oriented occupations and among older workers. In low-paying occupations, the earnings effect is largely attributable to decreased working hours and to a suppressed wage drift for stayers. However, we also observe a positive employment effect at the individual level for workers in the upper segment of the wage distribution. At the firm level, LMT removal increases the number of non-EU employees while having no effect on profitability.

Keywords: labor market testing; immigration; labor supply; wages; shortage list (search for similar items in EconPapers)
JEL-codes: J20 J38 J61 J68 (search for similar items in EconPapers)
Pages: 68 pages
Date: 2025-01-29
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