What’s the story of the gap between Israel’s highest and lowest earners?

19.07.2018

The recently published OECD Employment Outlook 2018 has caused a splash in the Israeli media with its important findings related to unemployment, the gender wage gap, and also the wage gaps between the Israelis who earn the most (wages in the 90th percentile) and those who earn the least (wages in the 10th percentile).

The OECD report finds that workers in Israel who earn wages in the 90th percentile earn more than 7 times as much as workers in the 10th percentile. This is a larger gap than the average in other developed countries, where the highest earners make a little under 3.5 times as much as the lowest earners. In fact, the gap in Israel is the highest among all OECD countries.

Already in 2014, researchers at the Taub Center examined wage disparities in Israel over the previous decade and expressed concern about the future. Income inequality in Israel had been steadily decreasing between the late 1990s and 2011. Nonetheless, the gap in 2011 remained among the highest in the OECD countries at the time, with those in the 90th percentile earning 4.9 times more than those in the 10th percentile (well under the 7.2 ratio of today). Despite the consistent decline, the researchers warned that certain trends would likely lead to growing income disparities in the future.
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Essentially, the researchers explained that, due to automation (replacement of manual repetitive jobs by machines and robots) in the Israeli economy, the middle of the wage distribution was eroding and the two ends of the spectrum seemed likely to move farther apart.

And, they were right. Since 2013 the gap between the Israelis who earn the most and those who earn the least has been growing – and to such a degree that it is now even higher than it was back in the late 90s.

According to Shraberman, who published a follow-up report with Claude Berrebi in 2017, the demand for high-skilled workers in Israel’s labor market has increased greatly, driving up the wages of those at the high end of the wage distribution. Increases at the high-wage end of the spectrum outweigh changes that have taken place in the lower and middle parts of the distribution. Thus, even with government policy intervening to improve the condition of low-wage workers by raising the minimum wage, the gap between Israel’s highest and lowest earners is continuing to widen – and at an alarming pace.
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