The Effects of a Sudden Stop in Low-Skilled Immigration
| AUTHOR | Anupam Manur |
| DATE | July 17, 2026 |
| CATEGORIES | Economic Policy |
This is such a beautiful paper that takes advantage of a natural break to see “What Happens When the Flow of Immigrant Workers Suddenly Stops?”! To address persistent labor shortages in sectors such as manufacturing, agriculture, and fisheries, the South Korean government introduced the Employment Permit System (EPS) in 2004, a guest worker program allowing low-skilled workers from 16 Asian countries to fill entry-level positions.In 2019, roughly 276,000 EPS workers were employed across the country, with approximately three-quarters concentrated in manufacturing. When COVID-19 border closures halted nearly all new visa issuances in 2020 and 2021, the EPS workforce shrank by about 22 percent. Authors Jongkwan Lee, Giovanni Peri, and Hee-Seung Yang study the consequences of this disruption on approximately 1,000 EPS-participating manufacturing firms.
Here’s the result from the NBER paper.
Using policy-driven variation in firms’ pre-pandemic reliance on immigrant labor, we show that the collapse in inflows led to a significant increase in firm exit. Among surviving firms, greater pre-pandemic dependence on immigrant workers resulted in production disruptions and operational delays. Firms did not respond by expanding domestic hiring to replace missing guest workers. Instead, they adjusted by reallocating incumbent Korean employees toward lower-skilled tasks, contributing to occupational downgrading and significant wage declines. These findings suggest that low-skilled immigrant workers were not easily substitutable in the short run and that tighter immigration constraints can impose substantial adjustment costs on both firms and native workers.