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

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.

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