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Macroeconomic and Labor Market Impact of Russian Immigration in Israel

  • Sarit Cohen

    ()

    (Department of Economics, Bar Ilan University)

  • Chang-Tai Hsieh

    (Princeton University)

From the end of 1989 to 1997, over 710 thousand Russian Jews emigrated to Israel, increasing Israel-s working-age population by 15 percent. This paper argues that a canonical one-sector neoclassical growth model explains both the short run and the medium run response of Israel,s economy to this shock. Specifically, we show that average effective wages of native Israelis fell and the return to capital increased during the height of the influx in 1990 and 1991. By 1997 however, both average wages and the return to capital had returned to pre-immigration levels due to an investment boom induced by the initial increase in the return to capital. As predicted by an intertemporal model of the current account, the investment boom was largely financed by external borrowing. Furthermore, despite the high educational levels of the Russian immigrants, the Russian influx did not lower the skill-premia of native Israelis. We show that this result is not explained by Rybczynski-type output composition changes but because the Russian immigrants suffered from substantial occupational downgrading in Israel and thus did not change the relative supply of skilled workers in Israel.

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File URL: http://www.biu.ac.il/soc/ec/wp/11-01/11-01.pdf
File Function: Working paper
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Paper provided by Bar-Ilan University, Department of Economics in its series Working Papers with number 2001-11.

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Date of creation: May 2001
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Handle: RePEc:biu:wpaper:2001-11
Contact details of provider: Postal: Faculty of Social Sciences, Bar Ilan University 52900 Ramat-Gan
Phone: Phone: +972-3-5318345
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Web page: http://www.biu.ac.il/soc/ec
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  1. Rachel M. Friedberg & Jennifer Hunt, 1995. "The Impact of Immigrants on Host Country Wages, Employment and Growth," Journal of Economic Perspectives, American Economic Association, vol. 9(2), pages 23-44, Spring.
  2. Weiss, Y. & Sauer, R.M. & Gotlibovski, M., 1999. "Immigration, Search and Lost of Skill," Papers 26-99, Tel Aviv.
  3. Rachel M. Friedberg, 1996. "You Can't Take It With You? Immigrant Assimilation and the Portability of Human Capital," NBER Working Papers 5837, National Bureau of Economic Research, Inc.
  4. John M. Abowd & Richard B. Freeman, 1991. "Immigration, Trade, and the Labor Market," NBER Books, National Bureau of Economic Research, Inc, number abow91-1, June.
  5. Elise S. Brezis & Paul Krugman, 1993. "Immigration, Investment and Real Wages," NBER Working Papers 4563, National Bureau of Economic Research, Inc.
  6. Eckstein, Z. & Weiss, Y., 1999. "The Integration of Immigrants from the Former Soviet Union in the Israeli Labor Market," Papers 33-99, Tel Aviv.
  7. Rachel M. Friedberg, 2001. "The Impact Of Mass Migration On The Israeli Labor Market," The Quarterly Journal of Economics, MIT Press, vol. 116(4), pages 1373-1408, November.
  8. Hercowitz, Z. & Yashiv, E., 1999. "A Macroeconomic Experiment in Mass Immigration," Papers 15-99, Tel Aviv.
  9. Gordon H. Hanson & Matthew J. Slaughter, 1999. "The Rybczynski Theorem, Factor-Price Equalization, and Immigration: Evidence from U.S. States," NBER Working Papers 7074, National Bureau of Economic Research, Inc.
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