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Macroeconomic and Labor Market Impact of Russian Immigration in Israel

Author

Listed:
  • Sarit Cohen

    () (Department of Economics, Bar Ilan University)

  • Chang-Tai Hsieh

    (Princeton University)

Abstract

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.

Suggested Citation

  • Sarit Cohen & Chang-Tai Hsieh, 2001. "Macroeconomic and Labor Market Impact of Russian Immigration in Israel," Working Papers 2001-11, Bar-Ilan University, Department of Economics.
  • Handle: RePEc:biu:wpaper:2001-11
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    File URL: http://www.biu.ac.il/soc/ec/wp/11-01/11-01.pdf
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    References listed on IDEAS

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    1. Hercowitz, Z. & Yashiv, E., 1999. "A Macroeconomic Experiment in Mass Immigration," Papers 15-99, Tel Aviv.
    2. 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.
    3. Yoram Weiss & Robert M. Sauer & Menachem Gotlibovski, 2003. "Immigration, Search, and Loss of Skill," Journal of Labor Economics, University of Chicago Press, vol. 21(3), pages 557-592, July.
    4. Eckstein, Zvi & Weiss, Yoram, 1999. "The Integration of Immigrants for the Former Soviet Union in the Israeli Labor Market," Foerder Institute for Economic Research Working Papers 275639, Tel-Aviv University > Foerder Institute for Economic Research.
    5. Yoram Weiss & Robert M. Sauer & Menachem Gotlibovski, 2003. "Immigration, Search, and Loss of Skill," Journal of Labor Economics, University of Chicago Press, vol. 21(3), pages 557-592, July.
    6. Elise Brezis & Paul Krugman, 1996. "Immigration, investment, and real wages," Journal of Population Economics, Springer;European Society for Population Economics, vol. 9(1), pages 83-93, February.
    7. 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.
    8. Rachel M. Friedberg, 2001. "The Impact of Mass Migration on the Israeli Labor Market," The Quarterly Journal of Economics, Oxford University Press, vol. 116(4), pages 1373-1408.
    9. Friedberg, Rachel M, 2000. "You Can't Take It with You? Immigrant Assimilation and the Portability of Human Capital," Journal of Labor Economics, University of Chicago Press, vol. 18(2), pages 221-251, April.
    10. John M. Abowd & Richard B. Freeman, 1991. "Immigration, Trade, and the Labor Market," NBER Books, National Bureau of Economic Research, Inc, number abow91-1, December.
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    Cited by:

    1. Timothy J. Hatton & Jeffrey G. Williamson, 2006. "What Determines Immigration's Impact? Comparing Two Global Centuries," NBER Working Papers 12414, National Bureau of Economic Research, Inc.
    2. Jeffrey G. Williamson, 2007. "Global Capital Markets in the Long Run: A Review of Maurice Obstfeld and Alan Taylor's Global Capital Markets," Journal of Economic Literature, American Economic Association, vol. 45(2), pages 400-409, June.
    3. Cohen Goldner, Sarit & Paserman, M. Daniele, 2004. "Mass Migration to Israel and Natives' Transitions from Employment," IZA Discussion Papers 1319, Institute for the Study of Labor (IZA).
    4. Cohen-Goldner, Sarit & Eckstein, Zvi, 2010. "Estimating the return to training and occupational experience: The case of female immigrants," Journal of Econometrics, Elsevier, vol. 156(1), pages 86-105, May.
    5. Daron Acemoglu, 2002. "Technical Change, Inequality, and the Labor Market," Journal of Economic Literature, American Economic Association, vol. 40(1), pages 7-72, March.
    6. Boldrin, Michele & Montes, Ana, 2015. "Modeling an immigration shock," European Economic Review, Elsevier, vol. 74(C), pages 190-206.
    7. George A. Akerlof & William T. Dickens, 2007. "Unfinished Business in the Macroeconomics of Low Inflation: A Tribute to George and Bill by Bill and George," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 38(2), pages 31-48.
    8. O'Connor, Peter & Stephenson, John & Yeabsley, John, 2012. "Grow for it - How population policies can can promote economic growth," NZIER Working Paper 2012/1, New Zealand Institute of Economic Research.

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