Foreign workers, Total Factor Productivity and Skills: puzzling evidence for firms in Emilia-Romagna

Abstract

Using administrative labour data from Emilia-Romagna (Italy), coupled with company financials, we assess the impact of foreign workers on the estimated Total Factor Productivity (TFP) of firms in the 2008–2015 time frame. We first obtained estimates for firm-level TFP from balance sheet data. Then, through Panel Data Estimation, we found that foreign labour has a positive and significant impact on the TFP of firms, but the impact is differentiated by sectors. Puzzling evidence hints for a potential readjustment in the labour market, with foreign, less-skilled labour replacing those positions left vacant by domestic, more skilled workers tapping onto better positions and wages. JEL Classification: F22, D22, J61, R10