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Regulating Labor Immigration: The Effects of Lifting Labor Market Testing

Author

Listed:
  • Jeremias Nieminen
  • Sanni Kiviholma
  • Ohto Kanninen
  • Hannu Karhunen

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.

Suggested Citation

  • Jeremias Nieminen & Sanni Kiviholma & Ohto Kanninen & Hannu Karhunen, 2025. "Regulating Labor Immigration: The Effects of Lifting Labor Market Testing," Working Papers 352, Työn ja talouden tutkimus LABORE, The Labour Institute for Economic Research LABORE.
  • Handle: RePEc:pst:wpaper:352
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    More about this item

    Keywords

    labor market testing; immigration; labor supply; wages; shortage list;
    All these keywords.

    JEL classification:

    • J20 - Labor and Demographic Economics - - Demand and Supply of Labor - - - General
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy
    • J61 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Geographic Labor Mobility; Immigrant Workers
    • J68 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Public Policy

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