The gaps in wages, skills, and schooling between Israeli workers and those in the OECD
The gaps in wages, skills, and schooling between Israeli workers and those in the OECD: An analysis by wage decile
- The hourly wage in Israel, for both women and men, is lower than the wage in OECD countries with comparable data at nearly all wage levels, but the gap is smaller in the higher wage deciles than in the lower ones. In the top decile, wages in Israel are higher than in the comparison countries.
- Among men, the skills gap between Israel and other countries is very wide at lower wage levels, and narrows as the wage decile rises. In contrast, the gaps in schooling are not correlated with the wage level.
- Among women, the paths of gaps in skills and in schooling are not similar to the paths of wage gaps. The narrowing of women’s wage gaps between Israel and the OECD countries as wage deciles rise derives from the higher wage return to skills in Israel compared to the other countries, and not from a narrowing of the actual skills gap.
A document written by Dr. Yuval Mazar of the Bank of Israel’s Research Department and that will appear in the Bank’s upcoming “Selected Policy Analyses and Research Notes” compares the levels of wages, skills, and schooling in the various wage deciles for workers in Israel with those of workers in parallel deciles in other OECD countries, and the wage returns of the skills and schooling. This is while distinguishing between genders, and emphasizing differences between the public and private sectors. The analysis is based on the PIAAC survey.
According to the survey, the wage gap between Israel and other countries decreases as the wage decile rises. That is, the higher the salary of a worker in Israel is, the narrower the gap between the worker in Israel and those in the comparison countries (Figure 1). In the highest wage decile, the hourly wage in Israel is even slightly higher than the average in the same decile in the comparison countries. These findings apply to both women and men. It was also found that the gap in basic skills between men in Israel and in the comparison countries becomes smaller as the wage decile rises (Figure 2), while there is no strong connection between the gap in the number of years of schooling in each decile and the gap in wages. That is, the dominant factor correlated with wage gaps between Israel and other countries is skills, not schooling.
In equations that estimated the wage returns to skills and to years of schooling, it was found that among men, the return to skills and to years of schooling in Israel is not significantly different than that in the other countries, while among women the return to basic skills in Israel is double the average of the comparison countries, meaning women’s wages in Israel are more closely correlated with changes in skills compared to women’s wages in the other countries. These results help to explain the trends found in the document regarding the connection between the skills gap and the wage gap, by deciles. Among men, the skills in Israel are higher compared to other countries the higher the wage decile of the worker is, and accordingly the wage gap between workers in Israel and in other countries is lower in the higher deciles. Among women, though the skills gap between Israel and the comparison countries does not markedly narrow as the wage deciles rise, the skills level is higher in all countries as the wage decile is higher. Thus, the higher return to skills in Israel is reflected in a decline in wage gaps the higher the decile examined.
 The comparison countries are: Belgium, the Czech Republic, Denmark, Spain, Estonia, Finland, France, the UK, Greece, Ireland, Italy, Japan, Korea, the Netherlands, Norway, Poland, and Slovakia. These are all the countries for which there are appropriate data from the PIAAC survey.