Technology, Trade, and Adjustment to Immigration in Israel

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


Key Takeaways:
  • 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.



Gordon H. Hanson

About Gordon Hanson

Gordon Hanson holds the Pacific Economic Cooperation Chair in International Economic Relations at University of California, San Diego, where he is director of the Center on Emerging and Pacific Economies, and he has faculty positions in the School of International Relations and Pacific Studies and the Department of Economics. He specializes in the economics of international trade, international migration, and foreign direct investment.

Matthew J. Slaughter

About Matthew J. Slaughter

Matthew Slaughter is the Paul Danos Dean, the Earl C. Daum 1924 Professor of International Business, and the founding Faculty Director of the Center for Business, Government & Society at the Tuck School of Business at Dartmouth College. Dean Slaughter’s area of expertise is the economics and politics of globalization.

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Neil Gandal

About Neil Gandal

Neil Gandal is a Professor of Economics and the Chair of the Eitan Berglas School of Economics at Tel Aviv University. His current research focuses on industrial organization, specifically on the economics of compatibility and standardization, the economics of the Internet, open source, and social networks.