This paper describes the ways by which state regulations created fertile soil on which legal labor migration in Israel developed into an unfree workforce. We show how state policies effectively subject foreign workers to a high degree of regulation, giving employers and manpower agencies mechanisms of control that they do not have over Israeli citizens. These mechanisms create a group of non-citizen workers that are more desirable as cheap, flexible, exploitable and expendable employees through enforcing atypical employment relations: fixed-term contracts, the binding system enforcing direct dependence of the migrants on manpower agencies and employers, and the threat of automatic deportation. These stringent state regulations have provided the context for the legal labor migrants to turn into a captive labor force, the system sometimes even degenerating into a human trafficking industry. In the paper we provide a description of the phenomenon of labor migration in Israel followed by the analysis of its four pillars: (1) the binding system which regulates employment relations (2) the policy of quotas and work permits; (3) the deportation policy; (4) the manpower agencies and their active role in the institutionalization of labor migration. We show how attempts at reforming the system have resulted in its further institutionalization.