The dynamic impact of immigration on natives' labor market outcomes: Evidence from Israel

Sarit Cohen-Goldner, M. Daniele Paserman

Research output: Contribution to journalArticlepeer-review

Abstract

This paper studies the short and medium run impact of highly skilled immigrants from the Former Soviet Union to Israel on natives' wages and employment. If immigrants are relatively good substitutes for native workers, 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, the initial effect of immigration is small, and increases over time as immigrants acquire local labor market skills and compete with native workers. We empirically examine these alternative hypotheses using data from Israel between 1989 and 1999.We find that wages of both men and women are negatively correlated with the fraction of immigrants with little local experience in a labor market segment. A 10 percent increase in the share of immigrants lowers natives' wages in the short run by 1-3 percent, but this effect dissolves after 4-7 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 medium run.

Original languageEnglish
Pages (from-to)1027-1045
Number of pages19
JournalEuropean Economic Review
Volume55
Issue number8
DOIs
StatePublished - Dec 2011

Keywords

  • Employment
  • Immigration
  • Labor demand
  • Wages

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics
  • Finance

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