Portugal has faced a substantial demographic shift that has led to an intense labor shortage across sectors, and this study investigates whether the recent increase in the share of foreign labor has influenced firm productivity. Using 2SLS estimation, we find a negative relationship between labor productivity (LP) and the share of immigrants. We further examine this relationship by looking at the impact of foreign workers on different firm layers, namely baseline productivity and size. We find that firms with low productivity are affected negatively, whereas relatively small firms seem to benefit. Through further disaggregation, we finally show that a higher proportion of immigrants with a medium education level is associated with a higher level of LP. On the whole, the results point to a potential mechanism in which immigrants and natives with similar education levels contribute positively to productivity, possibly by specializing in different roles within firms. • Employer-employee data show how immigrant labor affects firm productivity • The share of immigrant labor has a negative average effect on firm productivity • Immigrant labor has negative effects in low-productivity firms • Small firms gain from hiring immigrant labor • Medium-educated immigrants boost firm-level productivity
Ghasemi et al. (Sun,) studied this question.