This paper studies the effects of mass immigration from the former USSR to Israel in the
1990s on the employment of the native-born. The exogeneity and the size of this inflow make
it a “natural experiment” of macroeconomic proportions. An open-economy macroeconomic
model is used to analyze this experience, focusing on the differential entry of immigrants into
the labor and goods markets and the ensuing dynamic implications for labor demand. The
reduced form of the model – consisting of two equations for native employment and the
relative price of domestic goods – is estimated, finding negative effects of immigration on
native employment a year after arrival. The delay in the effect is attributed to a positive
impact of immigration on the excess demand for goods and, thus, on the demand for labor
earlier on.
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