The Role of Firms in the Assimilation of Immigrants

Abstract

This paper studies the role of firms in immigrants' labor market assimilation. We do so in the context of a large and sudden international migration shock: the arrival of nearly one million former Soviet Union (FSU) Jews to Israel in the 1990s. We use newly available Israeli population employer-employee data with information on workers' place of birth and immigration year. Over the course of twenty-five years since arrival to Israel, immigrants gradually enter higher-paying, larger, older, and less segregated firms. Gradual access to higher-paying firms explains a significant fraction of immigrants' labor market assimilation. Firm-specific pay premiums account for (i) 10-12% of the immigrant-native salary differential in the first ten years since arrival, and (ii) 28% of the gap between immigrants' own salary one and twenty-five years since arrival. FSU immigrants, who were highly educated, surpass natives after twenty years in Israel in terms of their employers' pay premiums, size, and age. An implication of our findings is that a significant fraction of the immigrant-native wage gap, especially shortly after arrival, is due to immigrants finding jobs at small, new, and disproportionately low-paying firms.