published in: European Economic Review, 2011, 55 (8), 1027-1045
This paper studies the dynamic impact of mass migration from the Former Soviet Union to
Israel on natives’ labor market outcomes. Specifically, we attempt to distinguish between the
short-run and long-run effects of immigrants on natives’ wages and employment. The
transition of immigrants into a new labor market is a gradual process: the dynamics of this
process come from immigrants’ occupational mobility and from adjustments by local factors
of production. Natives may therefore face changing labor market conditions, even years after
the arrival of the immigrants.
If immigrants are relatively good substitutes for native workers, we expect that the impact of
immigration will be largest immediately upon the immigrants’ arrival, and may become
smaller as the labor market adjusts to the supply shock. Conversely, if immigrants upon
arrival are poor substitutes for natives because of their lack of local human capital, the initial
effect of immigration is small, and the effect increases as immigrants acquire local labor
market skills and compete with native workers. We empirically examine these alternative
hypotheses using data from Israel’s Labor Force and Income Surveys from 1989 to 1999.
We find that wages of both men and women are negatively correlated with the fraction of
immigrants with little local experience in a given labor market segment. A 10 percent increase
in the share of immigrants lowers natives’ wages in the short run by 1 to 3 percent, but this
effect dissolves after 4 to 7 years. This result is robust to a variety of different segmentations
of the labor market, to the inclusion of cohort effects, and to different dynamic structures in
the residual term of the wage equation. On the other hand, we do not find any effect of
immigration on employment, neither in the short nor in the long run.
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