Immigrants' Legalization and Firms: Evidence from the 2007 EU Enlargement

How do firms respond to permanent changes in the legal status of a substantial group of migrants? We study the effects of the entry to the European Union of Bulgaria and Romania in the Italian labor market. This event was particularly relevant for Italy, where Romanians constitute approximately one fifth of the immigrant population. We use administrative employer-employee data on the universe of private-sector workers and an IV-DID design to identify the effects of this change in migrants' legal status on firms' personnel and performance. Firms exhibit an increase in the share of migrant workers at the expense of natives, not accompanied by a change in wage growth for either group. Migrant workers' gains are shown in increased job mobility and job security. Despite growing in size, firms show a decrease in per capita business outputs. Our results indicate that the change in legal status led to a formalization of undocumented workers and had positive implications for the affected migrant workers.