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We analyze the impact of obtaining a residence permit on foreign workers'labor market and residential attachment. To overcome the usually severeselection issues, we exploit a unique migration lottery that randomly assignsaccess to otherwise restricted residence permits in Liechtenstein (situatedbetween Austria and Switzerland). Using an instrumental variable approach, ourresults show that lottery compliers (whose migration behavior complies with theassignment in their first lottery) raise their employment probability inLiechtenstein by on average 24 percentage points across outcome periods (2008to 2018) as a result of receiving a permit. Relatedly, their activity level andemployment duration in Liechtenstein increase by on average 20 percentagepoints and 1.15 years, respectively, over the outcome window. These substantialand statistically significant effects are mainly driven by individuals not(yet) working in Liechtenstein prior to the lottery rather than by previouscross-border commuters. Moreover, we find both the labor market and residentialeffects to be persistent even several years after the lottery with no sign offading out. These results suggest that granting resident permits to foreignworkers can be effective to foster labor supply even beyond the effect ofcross-border commuting from adjacent regions.

How residence permits affect the labor market attachment of foreign workers: Evidence from a migration lottery in Liechtenstein