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Causes and Consequences of Inequality
Herbert M. Singer Conference Series
TAUB CENTER
for Social Policy Studies in Israel


Trends of Labor Income
Inequality in Israel
Ayal Kimhi and Kyrill Shraberman


Taub Center
for Social Policy Studies in Israel
The Herbert M. Singer Conference Series
Causes and Consequences of Inequality
Income Inequality in Israel and 28 OECD Countries
Gini index of disposable income per standardized person, 2005
New Zealand
0.232
0.234
0.258
0.265
0.268
0.268
0.269
0.271
0.271
0.276
0.280
0.281
0.291
0.298
0.301
0.312
0.317
0.319
0.321
0.328
0.335
0.335
0.352
0.372
0.376
0.381
0.385
0.430
0.474
Denmark
Sweden
Luxembourg
Austria
Czech Rep
Slovakia
Finland
Holland
Belgium
Norway
Iceland
France
Hungary
Germany
Australia
Korea
Canada
Spain
Greece
Ireland
UK
Italy
Poland
Israel
US
Portugal
Turkey
Mexico
Source: Taub Center for Social Policy Studies in Israel
data from National Insurance Institute and OECD
Labor Share of National Income
Source: Taub Center for Social Policy Studies in Israel
data from Israels Central Bureau of Statistics and OECD
55%
60%
65%
70%
75%
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Israel
U.S.
U.K.
Japan
90-10 Wage Ratios in Israel and 23 OECD Countries
ratios of monthly wages in the 90
th
percentile to wages in the 10
th
percentile
for full-time salaried employees, 2008
2.3 2.3
2.6
2.7 2.7
2.7
2.9
3.0
3.1
3.2
3.2
3.3
3.3 3.3
3.3
3.6 3.6
3.7 3.8
4.1
4.3
4.8
4.9
5.1
Source: Taub Center for Social Policy Studies in Israel
data from Israels Central Bureau of Statistics (income surveys) and OECD
Source: Taub Center for Social Policy Studies in Israel
data from Israels Central Bureau of Statistics (income surveys) and OECD
90-10 Gross Monthly Wage Ratios
all salaried employees, Israel and selected countries
2.5
3.0
3.5
4.0
4.5
5.0
5.5
6.0
6.5
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Israel
U.S.
U.K.
Japan
Source: Taub Center for Social Policy Studies in Israel
data from Israels Central Bureau of Statistics (income surveys) and OECD
1.8
2.0
2.2
2.4
2.6
2.8
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Israel
U.S.
U.K.
Japan
90-50 Gross Monthly Wage Ratios
all salaried employees, Israel and selected countries
Source: Taub Center for Social Policy Studies in Israel
data from Israels Central Bureau of Statistics (income surveys) and OECD
1.6
1.7
1.8
1.9
2.0
2.1
2.2
2.3
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Israel
U.S.
U.K.
Japan
50-10 Gross Monthly Wage Ratios
all salaried employees, Israel and selected countries
Handbook of Labor Economics, Volume 4b (2011)
CHAPTER 12
Skills, Tasks and Technologies: Implications
for Employment and Earnings

by
Daron Acemoglu and David Autor
Relative Changes in Real Hourly Wage by Percentile
all salaried employees, Israel (1997-2011) and US (1997-2008)
Source: Israel: Taub Center for Social Policy Studies in Israel; U.S.: Acemoglu and Autor (2011)
data from Israels Central Bureau of Statistics (income surveys)
0%
5%
10%
15%
20%
25%
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Israel 10%
US 10%
Israel 90%
Israel 50%
US 50%
US 90%
Source: Israel: Taub Center for Social Policy Studies in Israel; U.S.: Acemoglu and Autor (2011)
data from Israels Central Bureau of Statistics (income surveys)
Average Annual Change in Real Hourly Wage
relative to the median, all salaried employees, by percentile of the wage distribution
-0.4%
-0.2%
0.0%
0.2%
0.4%
0.6%
0.8%
1.0%
1.2%
0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100
Israel 1997-2011
US 1988-2008
Percentile of the wage distribution
Composition-Adjusted* Schooling Wage Premium
Israel (hourly wage) vs. the US (weekly wage)
Source: Israel: Taub Center for Social Policy Studies in Israel; U.S.: Acemoglu and Autor (2011)
data from Israels Central Bureau of Statistics (income surveys)
65%
70%
75%
80%
85%
90%
95%
100%
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Israel
U.S.
* Adjusted to the changes in the composition of the employee
population by potential experience and gender
Source: Israel: Taub Center for Social Policy Studies in Israel; U.S.: Acemoglu and Autor (2011)
data from Israels Central Bureau of Statistics (labor force surveys)
Composition-Adjusted* Relative Female Labor Supply
16+ years of schooling vs. 0-12 Years of Schooling, by Work Experience
-50%
0%
50%
100%
150%
200%
250%
300%
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Israel, 0-10 years of exp.
U.S., 0-9 years of exp.
Israel, 21-30 years of exp.
U.S., 20-29 years of exp.
* Adjusted to the changes in the composition of the employee
population by education
What did we learn so far?
Wage gaps in Israel are among the highest in the developed
world, especially within the upper half of the distribution
Since 1997 low-wage workers gained compared to middle-
and high-wage workers
The wage distribution became more polarized, with deciles
6 to 9 losing ground compared to the median worker
The schooling wage premium has risen, but remained
roughly stable since 2006
The relative supply of educated labor increased since 1997,
especially among the young, and stabilized since 2005
Wage polarization cannot be explained by the change in the
schooling wage premium alone


Male Wage Variability Explanation
partial R
2
, controlling for experience
Source: Taub Center for Social Policy Studies in Israel
data from Israels Central Bureau of Statistics (income surveys)
0
0.1
0.2
0.3
0.4
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Schooling
Occupation
Industry
Educational Distribution by Occupation, Females
Source: Taub Center for Social Policy Studies in Israel
data from Israels Central Bureau of Statistics (labor force surveys)
6 %
7 %
13 %
12 %
65 %
61 %
62 %
46 %
67 % 67 %
24 %
20 %
46 %
35 %
24 %
27 %
27 %
35 %
24 %
23 %
70 %
73 %
41 %
54 %
11 %
12 %
11 %
20 %
9 %
10 %
0-12 y. of schooling 13-15 y. of schooling 16+ y. of schooling
Managers & Academic
Professionals
Associate Professionals
Technicians
Agents, Sales &
Service workers
Skilled & Unskilled & Clerical workers
workers
1997 2011 1997 2011 1997 2011 1997 2011 1997 2011
Shares of Occupations in Employment, 1997 & 2011
Source: Taub Center for Social Policy Studies in Israel
data from Israels Central Bureau of Statistics (labor force surveys)
21 %
12 %
16 %
16 %
35 %
25 %
15 %
19 %
15 %
26 %
Managers & Academic
Professionals
Associate Professionals
Technicians
Agents, Sales &
Service workers
Skilled & Unskilled & Clerical workers
workers
1997 2011 1997 2011 1997 2011 1997 2011 1997 2011
Source: Taub Center for Social Policy Studies in Israel
data from Israels Central Bureau of Statistics (labor force surveys)
Changes in Employment Shares (%), 1997-2011
smoothed curve, by occupational wage percentile

-0.5%
-0.25%
0.25%
0.5%
0 20 40 60 80 100
Occupational percentile
0
Schooling Wage Premium by Occupation*
Full-Time Full-Year Salaried Employees, 1997-2011
Source: Taub Center for Social Policy Studies in Israel
data from Israels Central Bureau of Statistics (income surveys)
* Adjusted to the changes in the composition of the employee
population by education, potential experience and gender
-10%
0%
10%
20%
30%
40%
50%
60%
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Associate professionals & technicians
Managers & academic professionals
Skilled & unskilled workers
Summary
Wage gaps in Israel are among the highest in the developed
world, especially within the upper half of the distribution
Since 1997 low-wage workers gained compared to middle-
and high-wage workers
The wage distribution became more polarized, with deciles
6 to 9 losing compared to the median worker, especially
between 1997 and 2001
The schooling wage premium has risen, but remained
roughly stable since 2006
The relative supply of educated labor increased from 1997
to 2005 and stabilized since then
Wage polarization cannot be explained by the change in the
schooling wage premium alone


Summary (continued)
Occupation seems to explain wages better than schooling
Between 1997 and 2011 polarization of occupations has
increased, with labor shifting from middle-wage
occupations towards low-wage and high-wage occupations
This is similar to findings from the US, that are explained by
changes in labor demand stemming from technological
changes and/or globalization
The schooling premium increased in low-wage occupations,
implying that educated workers in these occupations gained
This is consistent with the observed trend towards higher
relative wages of low-wage workers
Conclusion and Policy Implications
Schooling is beneficial for workers even in low-wage
occupations, and policy should promote schooling among
traditionally lower-paid populations
Recent changes in the wage distribution are consistent with
the disappearance of the middle class
Adding the increase in the income share of capital, that is
mostly enjoyed by high-income people, the gap between
the top of the income distribution and all others is widening
While wage inequality seems to be driven by outside forces
and seems to decline in recent years, policy needs to
address the issues of workers who earn over and above
their productivity and those who do not enjoy adequate
working conditions

Trends of Labor Income
Inequality in Israel
Ayal Kimhi and Kyrill Shraberman


Taub Center
for Social Policy Studies in Israel
The Herbert M. Singer Conference Series
Causes and Consequences of Inequality