High-skilled out, low-skilled in The link between foreign workers and firm-level total factor productivity

This study quantifies total factor productivity (TFP) at the firm level. It examines its relationship with the economic activity sector and the proportion of high-skilled jobs in firms by applying firm-level administrative labour data from Emilia-Romagna, Italy, alongside financial records from 2008 to 2015. This analysis addresses the potential endogeneity of the presence of foreign workers using a shift-share instrumental variable technique, regressing the estimated TFP on the share of foreign workers to assess its influence by adopting a two-stage approach consistent with the established literature. The findings reveal a statistically significant negative association between TFP and the presence of foreign workers, suggesting that their potentially lower skill profile may not contribute favourably to firm performance when cost-containment strategies are prioritised. Results point towards a potential realignment in the labour market in which foreign, low-skilled workers fill vacancies left by domestic, high-skilled workers who transition to better employment and wages.