Abstract: I study an integration of local labor markets which made it easier for French border commuters to get a job in the high-wage Swiss labor market. The research design compares how labor market outcomes of employees in France evolve in treated labor markets relative to a matched control group of labor markets in other parts of France. While the reform attracted more highly educated workers to the Swiss market, it had three impacts on French labor markets: First, there is a small increase in wages, primarily among lower-skill workers. Second, employment in French firms does not decline and increases among low-skill workers. This stems, third, from an overcompensating response of labor supply: The active labor force increases both through an increase in the resident population and higher labor force participation, and this more than offsets the increase in commuting. The unemployment rate increases because not all workers find jobs. The effects are consistent with an equilibrium search model where the integration increases the value of job search and thus local labor supply. The newly entering workers create a search externality on the market: On one hand, firms’ vacancy filling rate increases, leading to an employment spillover in France. On the other hand, workers’ job finding rate decreases, which increases unemployment and dampens the direct wage impact from the access to Swiss jobs.

JEL Classification: J08, J21, J31, J42, J60, R23

The public research seminars of the Department of Economics and Finance (DEF) at Tallinn University of Technology  usually take place on the second and fourth Wednesdays of the month in both onsite and online format, unless announced otherwise. The presentation will last approximately 45 minutes followed by 15 minutes of discussion. The seminars are held in English. Copies of the paper are usually made available at the seminar. The DEF seminar series is organised in collaboration with the project ”Individual Behaviour and Economic  Performance: Methodological  Challenges and Institutional Context” (IBEP), which has received funding from the European Union’s Horizon 2020 Research and Innovation programme under Grant Agreement No 952574. Questions about the seminar can be sent to the IBEP seminar coordinator Kadri Männasoo, kadri.mannasoo@taltech.ee.