IMMIGRANTS FROM THE USSR IMPROVE ISRAELIS' LIVING STANDARD Julian L. Simon Happily, the press and television in Israel and in the United States have mostly been speaking positively about the economic effects of Soviet immigrants into Israel. And Israeli public opinion seems favorable to the new Soviet aliya. But already there is some complaining and opposition. The Jerusalem Post (International edition, February 24, 1990) headlines a story "Influx to Bring Unemployment". The Washington Post headline (January 21, 1990) says, "For Israel, Wave of Soviet Immigration Brings Promise and Problems". The Jerusalem Post reports concern about "preventing mass aliya from turning into mass unemployment" (June 2, 1990, p. 15). And if history is any teacher, there will soon be plenty of bitter opposition. Therefore, it makes sense to publicise early on the economic facts which demonstrate that, aside from the shortest-run costs, the effects of the olim are overwhelmingly positive. My interest in the economics of immigration was first kindled about 5am one morning in 1974 as I was walking the streets of Jerusalem together with a professor of history, carrying antiquated rifles, doing civilian guard duty. My companion insisted that the Soviet immigrants who were then arriving in large numbers would be a drag upon the Israeli economy - especially the educated immigrants. (It is amazing how many people who are in the education business can think so little of the product they produce.) Theoretical arguments based on other studies of the economics of population did not persuade my companion. So in following months I set to developing empirical data concerning immigrants and the Israeli economy. And then I broadened the scope of the work to include the U. S. economy, work that culminated in a book that finally came out in January 1990. Social scientists have by now created an impressive body of empirical knowledge about immigration, research which contradicts the popular wisdom on most matters. The research that has been done in the past decade, not only in Israel but also in the United States, Canada, and Australia, refutes the charge that immigrants injure existing residents economically. The results are amazingly similar from place to place. The general conclusion for all these countries is that immigrants raise the standard of living of natives, rather than lower it. They contribute more in taxes than the cost of the welfare services that they use, and they reduce the burden on the public of supporting public services and the elderly. They improve productivity and competitiveness with their inventiveness. They do not displace natives from jobs. Yes, in Israel the situation is a bit different than in the other countries. On the burden side, immigrants in Israel get special financial and material assistance. And the volume of immigration might be large relative to the size of the population, making adjustment more difficult, though in that respect the situation is no more difficult than that of West Germany now or after World War II, or than of Israel after 1948. On the benefit side, Israel's special security needs make additional persons particularly valuable. We'll see how these matters fit in later. The main facts follow. The available data are mostly for the immigrants who came in the 1970's. But there is no reason to think that the picture is different now, because this is exactly the same picture seen in other countries. The comparison is to the Jewish Israeli population. *The Soviet olim bring high levels of work skills. Sixty one percent of 1970s immigrant employees had more than 13 years of schooling, compared to only 26 percent of Jewish Israeli employees. Only 13 percent had less than 8 years of schooling, compared to 29 percent of the Israeli residents. Twenty five percent were in the key professions including engineers, technicians, architects, doctors, dentists, nurses, para-medics, and dental assistants. Of course statements of occupation are not always accurate. But the general picture from that aliyah is clear: the Russians brought highly useful occupational skills. The current immigration is even more favorable from the standpoint of education and skill, according to preliminary data from the people who arrived in 1989. An incredible one-third of all those of working ages are engineers, with perhaps another ten percent physicians and other medical workers. This is a wealth of talent that any country would treasure because of its extraordinary potential to increase productivity and speed economic advance. *Immigrants are not old and tired. In all countries and times, people move when on average they are in the early prime of their work lives - young adults, often single, with much smaller proportions of dependent older people and children than in the population at large. For example, 47 percent of the Soviets who came to Israel in the 1970s were between the ages of 15 and 44, compared to 42 percent in the Israeli population. This concentration in the young working ages means higher labor force participation, less welfare services needed, and many other benefits. The 1989 immigrants were not quite so favorable in their age distribution, just about mirroring the age distribution of the Israeli Jewish population, according to the Jewish Agency. But this may well be temporary, and it is reasonable to expect that over the entire course of the aliyah the age distribution will be concentrated heavily in the early working years. *Participation in the labor force is much higher. Fully 60 or 70 percent of the 1970s Soviet immigrants were soon in the labor force, compared to 48 percent of the Israeli public. Part of this huge difference comes from the age structure, but there is also a much greater job-seeking propensity of the olim in each age and sex category, especially among women. *The Soviet immigrants are not difficult to absorb. Within two months, 66 percent of the 1970s olim who sought jobs found jobs. Within one year of arrival, 90 percent were employed. This refutes the common belief that the Soviets take a long time to get sufficiently acquainted with the Israeli system to find a job, and that they are largely unemployables such as professors of Soviet literature who cannot learn how to do anything else. In the U. S., too, immigrants of all origins assimilate quickly. In every decade, the "new" immigrants are thought difficult to assimilate, unlike the "old" immigrants. But in each decade - including the 1970's and 1980's - the "new" immigrants have adjusted quickly both economically and culturally. Within a decade or two, immigrants come to earn more than natives with similar educational characteristics. *Immigrants do not cause native unemployment, even among low-paid and minority groups. A spate of recent studies in the U. S., using a variety of methods, have shown that the bogey of "displacement" of natives does not exist. New entrants not only take jobs, they make jobs. And the jobs they create with their purchasing power, and with the new businesses which they start up, are at least as numerous as the jobs which immigrants fill. There is every reason to believe that the analysis applies to Israel, too. Many people find this research conclusion hard to believe because it seems so contrary to the "common sense" that there are a fixed number of jobs, and more jobs for immigrants must mean less for natives. Labor unions fiercely resist this research conclusion, though they harm their own long-run interests if they succeed in reducing immigration. But this conclusion is as solid as such a scientific finding can be. *Immigrants do not exploit others by over-using welfare services. Immigrants typically arrive when they are young and healthy. Hence new immigrant families - as shown by solid research in both the United States and Canada - use less welfare services than do average native families, because immigrants do not receive expensive aid to the aged. And immigrant families pay more taxes than do average native families, because more of them are working. Therefore, immigrants into Israel as well as North America and Australia surely contribute more to the public coffers in taxes than they draw out in welfare services. Some veteran Israelis complain about the economic assistance that the Russians receive. But the level of auto and apartment ownership that the employees attain even after several years in Israel is far below that of natives, and below that of immigrants from Western Europe and the U. S. Furthermore, funds from outside of Israel have more than covered housing and other absorption expenditures. The absorption expenditures do not come from Israeli taxpayers' pockets. *Immigrants demonstrate desirable economic traits. Compared to natives, immigrants typically work more hours per week, save more (U.S. data), have higher rates of participation in the labor force, and are unusually self-reliant and innovative. Fully 60 or 70 percent of the new Soviet immigrants are in the labor force, compared to 48 percent of the Israeli public. Part of this huge difference is due to the age structure. But the immigrants also have a high job-seeking propensity, especially among women. First- and second-generation children in the U. S. do astonishingly well in school. In 1989, they were valedictorians in 13 of 17 Boston public high schools. They win an eye-opening proportion of scholastic prizes - 22 of 40 Westinghouse Science Talent Search finalists last year. And the children of immigrants earn more than average in all countries studied. It is very likely that the picture is the same in Israel, just as it was in earlier years true of the Jewish population in the U. S. *Immigrants increase the productivity of the economy. Immigrants increase the total size of the economy. This increases productivity through economies of scale. That is, production tends to become cheaper and more efficient as the quantity produced grows larger, due to greater specialization of labor and of capital, and more efficient use of capital. Some public facilities such as transportation infra-structure can be used more efficiently with a larger population. And very important is learning by doing; as enterprises produce more, they learn how to produce more efficiently. Newcomers also increase flexibility, because they are unusually mobile both geographically and occupationally. This flexibility is ever more important as economies must change rapidly to stay in tune with changes worldwide. Immigrants contribute important new productivity-enhancing ideas to industry and science, and they win Nobel prizes (U. S.). *Immigration reduces the uncuttable social costs of the elderly. More and more of the U. S. and Israeli populations are retired people, with a smaller proportion of adults in the labor force. New immigrants typically are just entering the prime of their work lives and tax-paying years. Immigration is the only feasible way to lighten the burden of the aging population. *Immigration also reduces the uncuttable social costs of defense. The taxes paid by olim contribute to the defense budget, which should be considered reductions in others' taxation because the total cost of defense increases very little with an increase in population. The same is true with reserve army duty. *The capital-dilution effect is the main negative factor. You can best understand the "capital dilution" effect in terms of a group of farmers sharing a tractor. If the number of farmers suddenly doubles, each farmer will have less use of the tractor, at least until someone buys or makes another tractor. In Israel's case, the capital to be shared includes public roads, ports, and other transportation resources; government- owned banks and factories; and the Histradrut sector. But another large part of Israel's capital is privately owned -- most retail stores, hotels, many factories, agricultural lands, etc; immigrant use of private capital means increased profit-returns to the veteran Israeli owners of the capital, and hence an increase in the average income of veterans. ***** Now we need an over-all cost-benefit assessment, taking into account the negative capital-dilution effect as well as the positive factors mentioned above. This is how the various factors add up in the evaluation of the role of the immigrant in Israeli society: --Transfers to an immigrant for housing and absorption from veteran Israeli residents amount to about ten percent of the immigrant's average working income in the first year, five percent thereafter. --Contributions from the immigrant to residents of 9 percent, 22 percent, 26 percent and 30 percent of average immigrant working income to defense in years 1-4, and 30 percent thereafter -- all of which lowers the residents' tax contribution for this purpose. --Losses to veteran residents from reductions in their income due to capital dilution are 10 percent, 17 percent, and 12 percent in the first three years, falling to zero by year 7, at which time the immigrant's beneficial effect on the economy begins to result in an economic boost for the resident population. Adding up these figures year-by-year, we see that the immigrant family's undiscounted net balance with the veteran resident population is positive by the end of the third year, becoming very large and positive in successive years. In other words, the "pay-back period" on the veteran residents' "investment" in immigrants is less than three years. In investment terms, the "rate of return" on the investment in Russian immigrants is a staggering 80 percent annually, which suggests that Israel's economy could give the olim about six times the sums now given and still obtain a rate of return of 15 percent a year. That's a profitable investment for anyone, anytime, anywhere. In brief, Israelis have every reason to cheer the immigrants from the USSR, not only out of Jewish love and the pleasure of having them safe, but for their own economic self-interest, too. Note: The data in this article are drawn not only from my own work but also from work by Professors Gur Ofer and Eitan Sabatello of Hebrew University and Aharon Winokur of Haifa University, and a variety of official published Israeli sources. Julian L. Simon is a professor at the University of Maryland, and the author most recently of Economic Consequences of Immigration (Cambridge, Mass.: Basil Blackwell, 1989). page 1 /article0 immisrl2/June 14, 1990