How do firms respond to geographic expansions of (labor) markets? The answer to this question is important to understand the consequences of policies that expand the size of local markets, e.g. improvements in transportation infrastructure. The goal of this project is to provide quasi-experimental evidence on firm-level productivity adjustment on both the extensive and intensive margin after an increase in local market size. It assesses the effects of the bilateral treaties between Switzerland and the EU which integrated labor markets across borders and reduced trade costs for some industries on regions along the French-Swiss border.

Preliminary evidence on the aggregate long-run effects of the liberalization shows a large increase in commuting from France to Switzerland. Relative to municipalities further away, population density increased in regions close to the border. This suggests an increase in labor cost to firms in these areas, either to compensate for better outside options or higher congestion costs. Despite this, employment has remained constant and slightly increased for blue-collar workers.