Relaxing Immigration Restrictions in a Peripheral Region: Evidence from Finnish North Karelia

Ohto Kanninen (), Hannu Karhunen (), Sanni Kiviholma () and Jeremias Nieminen
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Ohto Kanninen: Labour Institute for Economic Research LABORE
Hannu Karhunen: Labour Institute for Economic Research LABORE
Sanni Kiviholma: Labour Institute for Economic Research LABORE

No 365, Working Papers from Työn ja talouden tutkimus LABORE, Labour Institute for Economic Research LABORE

Abstract: Several countries use immigration liberalization as a place-based policy tool, but evidence on its regional effects remains almost entirely descriptive. We examine the causal impact of removing labor market testing (LMT) regulations for labor immigrants in all occupations in the remote Finnish region of North Karelia. The reform allowed firms to hire non-EU foreign workers in all occupations without first advertising jobs to domestic applicants, resulting in a 14% rise in the stock of immigrant workers. Using synthetic control and difference-in-differences methods, we estimate causal effects of the reform at the regional, municipal, firm establishment, and individual levels. The reform caused immigrant inflows to increase primarily in cities and in specific types of occupations, i.e., low-paying occupations and ISCO groups 5, 7, 8, and 9. Across the firm size distribution, the increases concentrate around the median and the top. We find little evidence that the policy had meaningful effects on other regional or municipal outcomes: immigration liberalization boosted labor supply without generating transformative medium-term regional effects.

Keywords: immigration; labor supply; aging population; regional economy; labor market testing; synthetic control; difference-in-differences (search for similar items in EconPapers)
JEL-codes: J20 J38 J61 J68 R11 R58 (search for similar items in EconPapers)
Pages: 47 pages
Date: 2026-09-09
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