Gender, ethnic, and national earnings gaps in Israel: The role of rising inequality☆
Introduction
Ethnically diverse societies are usually characterized by earnings gaps between the dominant and subordinate groups. Within each group, men are usually located above women on the earnings scale. There are three possible, not mutually exclusive, explanations for these earnings gaps. First, between-group differences in earnings determinants, mainly education, occupational composition and labor market experience are often cited as legitimate sources for between-group earnings differentials because they follow meritocratic principles. Second, at times there is evidence for labor market discrimination against subordinate groups such as ethnic minorities and women. To the extent that employers prefer men of the dominant group over other types of workers, it may be possible to attribute the earnings gaps to discrimination against workers that do not belong to the preferred group (Becker, 1971). Such a process is perceived as economically inefficient and socially unjust. Finally, the level of earnings inequality in a society, which is a result of social and economic policies as well as market forces, has an impact on between-group earnings differentials (Juhn et al., 1991). Societies characterized by high levels of inequality produce larger earnings differentials between groups. The relative position of weaker groups in the earnings distribution of high-inequality labor markets is inferior compared to the relative position of similar groups in more equal markets (Blau and Kahn, 2000).
Over time, subordinate groups often narrow the differences on productivity-related attributes between them and the dominant groups. At the same time, the level of labor market discrimination against subordinate groups may decline. These processes are due to several factors, some of them generated by public policies that are designed to elevate the social and economic position of the weaker groups, such as affirmative action, equal opportunity legislation, and educational and financial programs for students in need. Other factors are the result of better integration of the weaker groups in society such as the acquisition of skills necessary for success in the labor market, networking, and political representation of subordinate groups.
However, despite narrowing the gaps in human capital and other earnings determinants between them and the dominant group, subordinate groups may find themselves in a worse position in the earnings distribution relative to the dominant group. For example, since the early 1980s the gaps in earnings determinants between black and white women has decreased, yet the average earnings ratio of black-to-white women in the late 1990s had not improved relative to the ratio in the early 1980s (Altonji and Blank, 1999, Blau and Beller, 1992). The explanation for this apparent puzzle is rooted in changes in the earning structure in the US during the 1980s and 1990s. Specifically, earnings inequality increased, and consequently the slight improvement in the relative characteristics of black women was not sufficient to offset the effects of the changing earnings structure (Blau and Kahn, 2000).
After ruling out the possible role of differences in earnings determinants (as is the case in the US with respect to black women), we are left with two processes that might be responsible for maintaining, and even raising the earnings gaps between the dominant and subordinate groups—more intense labor market discrimination, and rising earnings inequality. While the first process has been studied extensively, the latter has often been overlooked. The present paper is designed to fill this gap by examining the Israeli case. Israel is an ideal case for better understanding the role of rising inequality in the widening earnings gaps between dominant and subordinate groups. First, Israeli society is ethnically diverse. The dominant groups earn more than the subordinate groups, and within each ethnic group women earn less than men. Second, there is evidence for persisting and even growing earnings differentials between dominant and subordinate groups in Israel despite diminishing differences in productivity-related variables between the groups. This ensures that rising inequality or rising discrimination (or both) are indeed responsible for the deterioration in the relative position of minority groups in the Israeli labor market. Finally, income and earnings inequality increased in Israel more than in most other countries (Dahan, 2001, Gottschalk and Smeeding, 1997). Such a sharp rise (similar to a powerful “treatment” in an experiment) allows us to detect its possible impact on the dependent variable—changes in between-group earnings gaps. Furthermore, it appears that similar processes affecting inequality in other countries are also responsible for the rise in inequality in Israel. Such similarities will enable us to generalize the findings of the Israeli case to other countries as well.
Section snippets
The Israeli case: background
Israeli society is characterized by a cleavage between Jews and Arabs, and within the Jewish society between Jews whose parents immigrated to Israel from Europe and America (henceforth, Ashkenazim) and those from Asian and African origin (henceforth, Mizrahim). Israeli Arabs compose, approximately, 20% of the Israeli population. The establishment of the Jewish state in 1948 and the Arab–Jewish war that followed left the Arab minority subordinate to the victorious Jewish majority and in an
Labor market discrimination and earnings inequality
Two main processes, not mutually exclusive, may explain the persisting earnings differentials between Ashkenazi men and other major groups of Israeli-born in the labor market, in light of diminishing differences in productivity-related variables between the groups. The first is an increase in labor market discrimination. To the extent that Israeli employers prefer Ashkenazi men over other type of workers—Arabs, Mizrahim, or women—and this preference has intensified over time, it would be
Data and variables
The data for the study are taken from Income Surveys for the years 1975, 1982, 1992, and 2001. Using four cross-section data sets of the same structure allows us to follow trends in earnings gaps during the entire period of 1975–2001. Income Surveys are conducted annually by the Israeli Central Bureau of Statistics (CBS) as a supplement to Labor Force Surveys, and contain basic demographic information as well as earnings data for a representative sample of households. We use the individual
Methods
Our analyses builds on a method proposed by Juhn et al. (1991), and was employed in a series of studies by Blau and Kahn, 1995, Blau and Kahn, 1996, Blau and Kahn, 2000 for explaining the impact of inequality on the development of racial and gender gaps in the US labor market, as well as for comparing the US to European labor markets. This method, using successive cross-sectional data sets, enables us to decompose changes in earnings gaps between two groups at two time points into (a) a portion
Descriptive statistics
Table 1 presents descriptive statistics of all variables for each group for the 4 years. As expected, rising inequality in the Israeli labor market during the period is manifested in the sharp increase in the variance in monthly earnings within all groups between 1975 and 2001. With regard to the level of earnings, Table 1 shows that all five groups have experienced positive growth in real earnings during the 26-year period. The average earnings of the benchmark group in 1975—Israeli-born
Conclusions
Table 2 tells an unequivocal story: Since 1975, the transformation in the earnings structure which led to rising earnings inequality among Israeli workers is the sole reason behind the rising mean earnings gap between Ashkenazi men and Mizrahim, both men and women. Likewise, the gaps between Ashkenazi men and women also increased during that period, and here too, changes in the earnings structure leading to rising inequality, provide the entire explanation for the rise in the earnings gaps
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This research was supported by the Israel Science Foundation (Grant No. 919/04). We thank Tali Kristal and Yasmin Alkalai for technical assistance.