Analyzing Wage Variance in Israel Relative to the OECD, Focusing on the Lower Part of the Wage Distribution
This study uses the results of the PIAAC survey—a joint micro database covering Israel and the other OECD countries—to describe the variance of wages in Israel. It first shows that wage variance in Israel is higher than in other OECD countries, whether we control for explanatory variables—mainly human capital—or not. This means that the high wage variance in Israel is not due solely to the high variance of human capital.
Since labor productivity in Israel is lower than in other OECD countries, we focus on the lower part of the unexplained wage variance. We examine the rate of those receiving significantly low wages in Israel by international comparison, while controlling for workers’ human capital, including education level, skills level, age, and gender. We find that about 17 percent of male workers and about 14 percent of female workers in Israel earn significantly less than what would be expected based on their human capital (number of years of study, and skills)—a rate that is almost double the average in the other OECD countries.
In contrast with low-wage earners generally, the group of those earning wages that are significantly lower than forecast is not characterized by low education or skills, but rather by semi-academic education, a relatively high age, a relatively high rate of Arabs, and a workplace that is close to their location of residence. This group also generally works in occupations with relatively low wages and in industries with low stock of physical capital.
We further found that the tendency of workers in this group to obtain professional training at their work place is lower than that of workers with similar skill levels who earn higher wages—a finding that is particularly prominent in Israel.