The Impact of Immigration on Swiss Wages: A Fixed Effects Two Stage Least Squares Analysis

Immigration has always been an important economic issue for Switzerland and thus a hotly debated topic in Swiss politics. Over the last forty years, the total share of foreigners (relative to permanent Swiss residents) has risen steadily from 9.3% in 1960 to 19.3% in 2000. With the forthcoming ratification of the Second Bilateral Treaties between the European Union (EU) and Switzerland, immigration and its impact on the Swiss economy, in particular on the Swiss labor market, will become even more important since immigration restrictions between member countries of the EU and Switzerland will, to a large extent, be eliminated. Currently the Swiss parliament is also working on a new naturalization law and is attempting a partial revision of the asylum act. Therefore, it is not surprising that unions and politicians are becoming more concerned about the effects of immigration on the wages of Swiss nationals. Surprisingly, there has not been much research undertaken regarding the consequences to the Swiss labor market even though there exists a vast international literature on the effects of immigration on domestic labor markets. ∗Thanks to Kurt Schmidheiny (Tufts University), George Sheldon (University of Basel), Tobias Wenzel (University of Mannheim), Philippe Deschamps and Henner Kleinewefers (University of Fribourg) for support and valuable comments. John Theal (University of Lausanne) and Shauna Selvarajah (University of Fribourg) proofread the paper. All remaining errors are (unfortunately) the sole responsibility of the author.