The Effect of Foreign Workers on Firm Productivity in Local Labour Markets of the UK

Abstract

This study investigates the causal effect of foreign workers on firm productivity in the local labor markets in the UK between 2012-2018. We collect financial data on 30,145 UK based firms from the Orbis database. Similarly, we obtain population data from Eurostat on employed foreign citizens in the UK. The local labour markets are defined by the NUTS2 regional classification, and is the common denominator for both our datasets. Additionally, this study attempted to capture this relationship in the context of Brexit. Our model identifies the effect of an increase or a decrease in the number of foreign workers on firm productivity through the calculation of an expected share of foreign workers. Under LATE assumptions, this effect does not show any statistical significance. However, when disaggregating by citizenship, the effect of EU workers on firm productivity becomes significant and positive, contrarily to the effect of nonEU workers which is significant too, but negative. Similarly, when considering specific industries the results are heterogeneous i.e. for professional, scientific and technical industry there is a significant impact of foreign workers on productivity, while for wholesale and retail only the non-EU share of workers show significant impact.