This paper examines the impact of increased labor market competition for firms,
workers, and local communities, by exploiting a shock to labor mobility from Swe-
den to Norway. We use unique Swedish and Norwegian matched register data,
allowing us to trace workers across the border and identify the impact on both
the sending and the receiving side. We show that Swedish firms experience rising
personnel costs and shrinking work forces, generating a drop in value-added and
an increase in market exit. Swedish communities experience population flight,
firm re-allocations, increased inequality and increased support for traditional
protectionist parties. Norwegian firms benefit through cheaper labor costs and
higher value-added. There is no evidence of Norwegian workers being displaced.
However, high-skill Norwegian labor lose their skill-monopoly, generating a wage
compression at the top of the income distribution and an improvement in wage
equality. We conjecture that the welfare implications of increased competition
depend fundamentally on the weight assigned to different actors (workers, firms
and communities) and players (sending and receiving side).