When is 'Too Much' Inequality Not Enough? The Selection of Israeli Emigrants

58 Pages Posted: 15 Jun 2008

See all articles by Eric D. Gould

Eric D. Gould

Hebrew University of Jerusalem - Department of Economics; Centre for Economic Policy Research (CEPR); IZA Institute of Labor Economics

Omer Moav

University of Warwick - Department of Economics; Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 2 versions of this paper

Date Written: June 2008

Abstract

This paper examines the effect of inequality on the incentives to emigrate according to a person's observable and unobservable skills. Borjas (1987) shows that higher skilled individuals are more likely to emigrate than lower skilled individuals when the returns to skill are higher in a potential foreign destination. Building on this framework, we develop a model which shows that this prediction holds for observable skills like education which are "general" in the sense of being easily transferable to another country. However, we show that the relationship between unobservable skills and the probability of emigrating is an inverse U-shape - since unobservable skills are a mixture of "general skills" and "country-specific skills" which are not easily transferable. We examine the predictions of our model with a unique data set containing information on who emigrates from Israel between 1995 and 2004, combined with a full set of demographic and labor market variables for both movers and stayers in 1995. By exploiting differences between Israel and the United States in the returns to observable (education) and unobservable skills across different sectors (industries and occupations), we find strong evidence that a lower return to unobservable skills in Israel versus the US entices higher ability Israelis to leave the country. Also, we find that emigrants are more positively selected in terms of their education in industries with a lower relative return to education in Israel versus the US. Overall, the results strongly support our model and the importance of differentiating between general and "country-specific" skills in the analysis of immigrant selection.

Keywords: emigration, selection, observable skills, unobservable skills

Suggested Citation

Gould, Eric D. and Moav, Omer, When is 'Too Much' Inequality Not Enough? The Selection of Israeli Emigrants (June 2008). Available at SSRN: https://ssrn.com/abstract=1146123 or http://dx.doi.org/10.2139/ssrn.1146123

Eric D. Gould (Contact Author)

Hebrew University of Jerusalem - Department of Economics ( email )

Mount Scopus
Jerusalem, 91905
Israel
+972 2 588 3247 (Phone)
+972 2 581 6071 (Fax)

HOME PAGE: https://sites.google.com/site/edgould

Centre for Economic Policy Research (CEPR)

London
United Kingdom

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Omer Moav

University of Warwick - Department of Economics ( email )

Coventry CV4 7AL
United Kingdom

HOME PAGE: http://www2.warwick.ac.uk/fac/soc/economics/staff/academic/moav

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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