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					Immigration and the labor
 Market: Facts and Policy
      Professor Zvi Eckstein
   School of Economics, Tel Aviv
             University
             May 2006
                  Outline
• Definition, motives, facts and policy on:

• Legal Immigration

• Temporary (legal) Foreign Workers

• Illegal Foreign Workers

                                              2
            Legal Immigration
• Definition: Households move to permanently live in a
      new country - Alia
• Motives of receiving Country
  Social-political: Jewish Alia (Israel) and political refugees
  Economic: Australia – point ranking
              US – Quota by region and industry
              EU – young workforce to replace aging population
• Motives of Immigrants
              Economic or social permanent transition to new society
• Policy:    Local economic assistance and equal/preferred
      labor market status, welfare and taxes

                                                                   3
         Temporary (legal) Foreign
                Workers
• Definition: Legal permit to non-residents working from few
      months to two years.
• Motives of receiving country:
  Sector specific lobby to reduce labor costs (“shortages”):
  Agriculture, Construction (Israel), Hi-Tech (“competitive
  labor market” - specific cases of high skilled visitors, etc.)
• Motives of immigrants:
  Income and money transfer – import labor/services
• Policy: Provide large quotas of workers for “man power” or
  employers to import workers under tax preferred status to
  employer – no welfare (Israel: agri., construction, elderly
  care): Europe (nothing today. No tax preferred in 1950’s-
  70’s): US -some
                                                               4
      Illegal Foreign Workers
• Definition: Non-residents that have no work permit who
  live and get restricted public services (public goods,
  health and education).
• Motives of receiving country
  Local demand for low cost personal services and work in
  cash economy. “competitive labor market”???. Law
  enforcement.
• Motives of immigrants:
  Economic and money transfer. Motives to stay longer.
• Policy : Compliance with law (varies by countries); out
  of the welfare system and after several years amnesty
  (US, EU). Size is highly correlated with legal foreign
  workers and wage differentials between these groups.
                                                        5
     Summary of Facts and Policy
•    Legal Immigrants
•    Facts:
1.   Israel: Legal immigration is associated with receiving
     country growth of income per-capita. Figure
2.   Israel: Aggregate analysis (macro) shows very small
     short run (one year to two) negative impact on wages
     of low skilled workers. (Eckstein and Weiss, 2004; Cohen and
     Hsieh, 2000; Hercowitz and Yashiv, 2000).
3.   Israel and other: Individual data analysis (micro)
     shows very small negative impact on native workers
     employment and wages – mainly low skilled (LaLond and
     Topel, 1997; Preidberg, 1997; Cohen-Goldner- Paserman, 2005).
                                                                     6
         Legal Immigration: Facts (continued)


4. Micro evidence: Integration is a five year adjustment
   process for high skilled immigrants to adjust to the new
   labor market. No full convergence (Weiss and Eckstein, 2005).
• Language, experience and training have high return to
   those who find high skilled occupation.
• Imported skills have zero return if not interacted with
   local human capital (Weiss and Eckstein, 2005).




                                                                   8
                     Legal Immigration: Policy

Policy:
• High social and individual return to language and job
  finding and adjustment to labor market to all immigrants
• High social and individual return to vocational training
  for high skilled occupations
• Zero (small) return to vocational training to low skilled
  jobs and workers – (fully consistent with existing research – Heckman
   et. al. 1999) .
   Conclusion: legal immigration (with public assistance)
      provides economic benefits to both natives and
                        immigrants.

                                                                     12
Temporary (legal – Illegal) Foreign Workers:
                   Facts
• Israel: (Data is less accurate)
1992-3: Palestinians are about 8% of workers in business sector (Agri.
   Construction); 0.2% are Foreign Workers.
1994 – 2005: Permits issued provided large cost reduction for construction and
   agriculture employment of foreign workers and large income for “importers”.
   Tax and other cost reduction benefits to employ foreign workers (40%
   difference to natives). Segmented labor market both from demand (cost)
   and supply (welfare).
Since 1996-7: Economists explain the implications – lower wages and
   employment for low skilled workers in Israel.
Since 2000 – Several papers show the negative impact on productivity and
   native wages.
• Other countries: Dustmann (2005, 2000, 1997) reports on the lower
    integration of temporary workers in the new labor market – less investment
    in local skills.
•   Today: Very small permit rates for temporary workers (no family formation)
    in developed countries.

                                                                             13
Temporary (legal – Illegal) Foreign Workers:
              Policy Advice
• Fix the differential tax system to make effective cost of
  all employee the same.
• Allow labor mobility of legal temporary workers
• Stop all permits to temporary workers (elderly
  assistance?) in all sectors (in stages).
• Increase law enforcement using the tax/social security
  system as well as incentives to illegal workers
  (amnesty) to leave/legalized in Israel.
• Conclusion: Temporary low skilled imported workers has
  a negative impact on native low skilled workers in non-
  traded sectors. Is not associated with growth of per-
  capita income and labor productivity.

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