Do Foreign Workers Affect Local Wages : Evidence from Israeli Agriculture

This paper examines the changes in the wages of different types of workers in different industries during a period in which the number of foreign workers in Israel increased considerably, especially in agriculture. We focus on unskilled workers, presumed to be substitutes to foreign workers, and skilled workers, who are presumed to be complements. We estimate a difference-in-difference log-wage regression in order to identify the relative wage changes in agriculture, construction and manufacturing, compared to all other industries. We find that the wages of unskilled workers in agriculture decreased compared to the other industries, while the wages of skilled workers and other occupations increased. This is consistent with the view that foreign workers have an important role in affecting the agricultural demand for local workers. Similar results were not found for the other industries, perhaps because their dependence on foreign workers is not as large as in agriculture. In the policy debate over the number of foreign workers in agriculture and their cost, the negative impact on the wages of unskilled workers has to be weighed against the positive impact on the wages of all other workers