Abstract
In this paper, we study whether Swiss employers substitute between training apprentices and hiring cross-border workers. Because both training apprentices and hiring skilled workers are costly for firms, we hypothesize that (easier) access to cross-border workers will lead some employers to substitute away from training their own workers. We account for potential endogeneity issues by instrumenting a firm’s share of cross-border workers using a firm’s distance to the national border and therefore its possibility to fall back on cross-border workers to satisfy its labor demand. We find that both OLS and 2SLS estimates are negative across a wide range of alternative specifications, suggesting that firms substitute between training and hiring workers when the supply of skilled workers is higher. Our preferred 2SLS estimate implies that the increase in firms’ share of cross-border workers within our observation period, from 1995 to 2008, led to about 3500 fewer apprenticeship positions (equal to about 2% of the total number of apprentice positions).
Highlights
Integrating the labor markets of their member countries has been a key objective within the European Union
Economic theory predicts that there will be distributional effects from immigration, at least in the short run. This implies that some groups will presumably suffer from immigration, even when its overall effect is positive on the host country (e.g. Bansak et al, 2015; Borjas, 2014)
Because training apprentices is costly for employers – average training costs over the full training period equal almost 100,000 Swiss francs, equivalent to about 1.28 times the annual median wage in 2016 – we hypothesize that access to CBWs will decrease the costs of hiring skilled workers and will lead some firms, in the medium term, to substitute away from training their own workforce to hiring more CBWs
Summary
Economic theory predicts that there will be distributional effects from immigration, at least in the short run This implies that some groups will presumably suffer from immigration, even when its overall effect is positive on the host country We estimate – against this broader background – employers’ short-run substitution between the training of resident apprentices and the hiring of cross-border workers (hereafter CBWs), i.e. non-resident immigrant workers who live in one of the neighboring countries but who work regularly in Switzerland. Prospective apprentices are not yet in the labor market, they are not organized or politically represented, and they have low bargaining power. The other notable shift was towards more highly skilled workers, starting in the late 1990s to early 2000s, and which continues to this day.
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