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

This paper studies the short and medium run impact of highly skilled immigrants from the Former Soviet Union to Israel on nativesʹ wages and employment. If immigrants are relatively good substitutes for native workers, the impact of immigration will be largest immediately upon the immigrantsʹ 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. d 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 nativesʹ 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.