Bank of Israel Research Department Conference: "Inequality and Government Intervention"

 

  • The Research Department is holding a conference today entitled "Inequality and Government Intervention".
  •  The conference features research work carried out at the Bank of Israel Research Department as well as other work, a keynote lecture by Prof. Giovanni Violante of Princeton University, and a panel discussion with researchers and policy makers discussing equal opportunity, inequality in the labor market, and the ways to deal with it.

 

The Bank of Israel Research Department conference is being held today in Jerusalem.  The conference is discussing many macroeconomic areas concerning inequality, including inequality in education, inequality in the world of finance, the middle class, the savings for every child program and intergenerational inequality, and the effect of monetary policy on inequality.

 

Bank of Israel Governor Prof. Amir Yaron opened the conference and spoke about inequality in the Israeli economy, while reviewing a variety of aspects: the economic aspect, meaning earning capacity; the aspect of abilities as reflected in scholastic achievements and labor market skills; and the aspect of equal opportunity.  Prof. Yaron's remarks are being published separately.

 

Sigal Ribon, Head of the Monetary Policy Division in the Research Department, presented a study that examines whether monetary policy has a differential effect on households with different income levels.  The study examines the response of household consumption to changes in the interest rate, through data from the Central Bureau of Statistics Expenditure Survey, and finds that an increase in the interest rate reduces mainly the consumption of durable goods, and is more significant for the upper income quintiles.  It also finds that households that own dwellings and pay mortgages reduce their purchases of durable goods as a result of an increase in the interest rate more than households that rent their dwelling.

 

Osnat Peled of the Bank of Israel presented a study that examines the development of the middle class in Israel in the past two decades. Despite the proven importance of the middle class, there are differences of opinion regarding the appropriate definition and regarding the proper way to identify the population belonging to this class.  The study shows that various definitions could lead to different conclusions not only regarding the size of the middle class and its share of income in the economy, but also, in certain cases, regarding the direction of the development of these variables.  Despite the differences, the Israeli middle class, under most definitions, shows an increase in size and in their share of income since 2011, following a decline in size in the previous decade.​

 

Natalya Presman and Nitzan Tzur-Ilan of the Bank of Israel presented a study examining the extent to which various factors affect the setting of the interest rate on mortgages in Israel.  Among other things, the study indicates that there are statistically significant gaps between the interest rates on mortgages provided to finance the purchase of properties located in various geographic areas and in statistical areas at different socioeconomic levels.  In particular, the study finds that the interest paid by home buyers in more financially established neighborhoods in the center of the country is the lowest, while the interest paid by home buyers in financially weaker neighborhoods in the periphery is the highest.  The researchers found that the observed characteristics of the borrower, the mortgage, and the financed property, as well as the extent of competition between the banks, may explain up to two-thirds of the gaps between areas in mortgage interest rates.

 

The conference featured a keynote address by Prof. Giovanni Violante of Princeton University.  Prof. Violante discussed Fiscal and Monetary Policy with Heterogeneous Agents, particularly those with a different marginal tendency to consume, meaning individuals with different levels of income.  The analysis is based on financial assets at various liquidity levels and yields.

 

Two studies by Leah Achdut of the Ruppin Academic Center, and Elad Gutman, Noam Zussman, Idan Lipiner, Inbal Ma'ayan and Dror Rosenfeld of the Bank of Israel examined the wage premium on higher education obtained at universities and colleges, over-education, and the lack of correspondence between a person's occupation and his field of study.  The studies are based on administrative data files, censuses and surveys, and found that the wage premium of university graduates is about 10 percent higher than that of college graduates, after adjusting for abilities.  The chance of Bachelor's graduates from public colleges being over-educated and having a lack of correspondence is higher, followed by university graduates (3–6 percentage points lower), and then by graduates of the private colleges (8–9 percentage points lower than public college graduates).  Over-education reduces the gross annual wage by about 17 percent, and lack of correspondence subtracts 5–6 percent from wages.

 

The conference will conclude with a panel discussion hosted by Michel Strawczynski, Director of the Research Department, which will discuss equal opportunity, inequality in the labor market, and how to deal with it.  The panel will include Nahum Blass, Senior Researcher at the Taub Center, Adi Brender, Head of the Macroeconomics and Policy Division in the Bank of Israel Research Department, Momi Dahan of the Hebrew University, and Avi Simhon of the Hebrew University who is currently serving as the Head of the National Economic Council and as Economic Advisor to the Prime Minister.​