As immigration continues to rise throughout the Western world, the question of the economic impact of immigration on the host country labor market is moving to the center of the public debate. The concern that competition from immigrants may hurt the wages and employment prospects of low skilled natives is among the factors that drive negative attitudes toward immigrants in Europe and the USA. Despite this widespread sentiment, the economic literature has failed to find conclusive evidence for an adverse effect of immigration on natives’ labor market outcomes. In this paper, we try to shed additional light on this issue by studying the impact of the mass migration to Israel of the 1990s. From 1989 to 2000 more than 1 million Jews migrated from the former Soviet-Union (FSU) to Israel, increasing its population and labor force by extraordinary magnitude.
The main novel feature of our work is the attempt to distinguish between the short and long run effects of immigration on the labor market. Much of the existing literature has assumed that the effect of a given immigration wave is uniform over time. However, there are reasons to believe that this is not the case. For example, if immigrants are relatively close substitutes to natives when they land in the host country, we would expect to see an immediate impact on wages and employment, as the stock of capital and other factors of production are fixed in the short run. However, as time goes by, capital and labor adjust, so that the medium and long run response will be smaller, and, under certain assumptions, potentially even zero. An alternative possibility is that upon arrival, immigrants are poor substitutes for native workers, since their imported human capital is not transferable to the host economy (Friedberg, 2000; Eckstein and Weiss, 2003). Therefore, the immediate impact of immigration on natives’ labor market outcomes is close to zero; nevertheless, as immigrants acquire local labor market skills, they compete with native workers, so that the medium and long run effects on natives’ outcomes might be substantial.