How Residence Permits Affect the Labor Market Attachment of Foreign Workers: Evidence from a Migration Lottery in Liechtenstein

We analyze the impact of obtaining a residence permit on foreign workers' labor market and residential attachment. To overcome usually severe selection issues, we exploit unique migration lottery that randomly assigns access to permits for workers with an employment contract in Liechtenstein, which is situated centrally Europe. Using instrumental variable approach, our results show compliers raise their probability Liechtenstein by average 24 percentage points across outcome periods (2008 2018) as result receiving permit. Relatedly, activity level duration increase 20 1.15 years, respectively, over window. These substantial statistically significant effects are predominantly driven individuals not (yet) working prior rather than previous cross-border commuters, but even latter group, positive emerge longer run. Indeed, find both be persistent several years after no sign fading out. suggest granting resident can effective foster supply, despite alternative commuting from adjacent regions.