A Macroeconomic Experiment in Mass Immigration

This Paper studies the effects of mass immigration from the former USSR to Israel in the 1990s on the employment of the native-born. The exogeneity and the size of this inflow make it a ‘natural experiment’ of macroeconomic proportions. An open-economy macroeconomic model is used to analyse this experience, focusing on the differential entry of immigrants into the labour and goods markets and the ensuing dynamic implications for labour demand. The reduced form of the model – consisting of two equations for native employment and the relative price of domestic goods – is estimated, finding negative effects of immigration on native employment a year after arrival. The delay in the effect is attributed to a positive impact of immigration on the excess demand for goods and, thus, on the demand for labour earlier on.