The Equilibrium Effects of Workers’ Outside Employment Options: Evidence from a Labor Market Integration


We study a reform that eased cross-border commuting from France to the high-wage Swiss labor market. Using a difference-in-difference strategy comparing French border labor markets with unaffected inland markets, we find: Wages increase among mid- and low-skill workers employed in France; employment in France does not decline overall and increases among low-skill workers; population, labor force participation and unemployment rise in France. We interpret the effects with an equilibrium search model where labor demand and supply are endogenous: The reform increased the value of local job search, drawing more workers into the labor force and lowering labor market tightness.

Rej&R EJ