The Absorption of Highly-Skilled Immigrants: Israel, 1990-1995

This paper develops a descriptive methodology for the analysis of wage growth of immigrants, based on human capital theory. The sources of the wage growth are: (i) the rise of the return to imported human capital; (ii) the impact of accumulated experience in the host country; and (iii) the mobility up the occupational ladder in the host country. We formulate a non-linear model which is estimated, using repeated cross-section data. Using data on immigrants from the former Soviet Union to Israel, we find that upon arrival, immigrants receive no return for imported skills. In the five years following arrival, wages of highly skilled immigrants grow at 8.13% a year. Rising prices of skills, occupational transitions, accumulated experience in Israel, economy-wide rise in wages and repeated sampling account for 4.3, 3.1, 1.6, 1.2 and 2% each. There is convergence to natives in the occupational distribution, but not in wages. In the long run, the return for schooling converges to 0.044 and 0.027 for immigrants in high- and low-skill occupations, respectively, substantially below the 0.073 for natives. The return for experience converges to that of Israelis, and immigrants receive higher return for their unmeasured skills.