Technology, Trade, and Adjustment to Immigration in Israel

Innovation and Economic Growth

Article Snapshot


Neil Gandal, Gordon Hanson and Matthew J. Slaughter


European Economic Review, Vol. 48:2, pp. 403-428, 2004


This paper asks why a flood of high-skills immigrants did not reduce wages in Israel.

Policy Relevance

Changes in technology worldwide can increase the demand for skilled labor, keeping wages high, especially when countries are open to trade.

Main Points

  • In the 1990s many highly educated workers immigrated to Israel from Russia, one of the largest floods of immigration in history. Its labor force increased by 14%, but the wages paid to high skilled workers increased rather than decreasing. 

  • If Israel were a closed economy, adjustment would have been difficult, but Israel is open to trade, especially with Europe and the United States.

  • Our data shows that worldwide technological change affecting how products were produced, helped Israel absorb new immigrants into the workforce.

  • Israel also might have absorbed immigrants is by changing the types of goods produced for trade, but our data shows that this was not a factor. Israel’s national economic growth tended to low-skilled workers in sectors such as construction, rather than high-skilled workers.

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