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

• Legal Immigration

• Temporary (legal) Foreign Workers

• Illegal Foreign Workers

            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

         Temporary (legal) Foreign
• 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
      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
• 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.
     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).
         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).

                     Legal Immigration: 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

Temporary (legal – Illegal) Foreign Workers:
• 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.

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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