Notes on Israeli inequality

Inequality in Israel has been rising rapidly, but it is neither from trade with China nor because of robots.  In part more of the Israeli economy has shifted — for technological reasons — into inequality-inducing sectors, such as information technology.  The greater size and openness of the Israeli economy also mean that preexisting educational disparities, many of them rooted in religious and ethnic differences, now map into greater income differentials.  For instance a growing role for exports in the economy boosts income inequality because not all workers have access to the international customers, whether directly or indirectly.

Many of the ultra-Orthodox here have characteristics of “threshold earners,” as I have discussed that concept in the past.  Their wages have stagnated in real terms or even fallen over the last decade.

Russian-born Israelis have enjoyed strong income gains, whereas the non-Haredi Israeli-born middle class Jews have lost a small amount of ground.

The price of housing remains inefficiently high.

I sometimes say that Israel is where “Average is Over” happens first:

“…the income gap between the 90th percentile and the median worker in Israel is the highest of all the developed countries, as is the income gap between the median (50th percentile) and the 10th percentile. And if that is not enough, the income gap between the 75th percentile and the 25th percentile, in other words the income gap within the middle class − between the upper and lower middle class − is also the highest in the developed world.”  The link is here.

The bottom decile actually has done quite well in terms of rates of change, but the 6th through 8th deciles have done especially poorly (same link).  That source serves up the intriguing hypothesis that the disappearance of middle class-earning middlemen in the Israeli economy is due to the disintermediation of the internet, although without citing any data.  In any case, it is the non-substitutable, non-automatable, manual labor jobs which have seen rising pay at the very bottom.

(As an aside, a number of recent studies of rising income inequality caricature the technology hypothesis in a variety of non-useful ways, and thus (incorrectly) reject it.  I hope to consider those arguments in more detail, in the meantime I will note that the Israel case study is a useful corrective to those views, by showing the broad spectra of ways in which technology influences income distribution.  It’s not just or even mainly about “robots.”)

The Israeli economy has a high degree of economic and financial concentration.  How much that problem would be alleviated if Israel could have normal trade and investment relations with its immediate neighbors?

A higher employment to population ratio would yield a good deal of low-hanging fruit.  It is hard for me to judge across what time horizon that might happen here.


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