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Abstract:
We study a reform that eased cross-border commuting from France to the high-wage Swiss labour market. Using a difference-in-differences strategy comparing the French border region with the unaffected French inland, we find that wages increase among mid- and low-skill workers employed in the French border region. Employment in the French border region does not decline overall and increases particularly for low-skill workers. Both local labour supply and demand adjust substantially. Labour supply increases through the local population and the labour force participation rate. Firms increase sales and productivity more than wages, implying that the labour share did not rise. The results thus show that if labour supply is elastic enough, the local labour market can expand and absorb additional competition for workers.