1

Inequality in Israel




October 30, 2013
Karnit Flug, Incoming Governor
Bank of Israel
The Taub Center
2
Gini coefficients of disposable income inequality
(Mid 1980s and late 2000s)
2008
1985
Source: Divided we stand: why inequality keeps rising, OECD (2011).
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Inequality in Israel
Gini Index (1997-2011)
Source: Bank of Israel.
0.34
0.36
0.38
0.40
0.42
0.44
0.46
0.48
0.50
0.52
0.54
Market income Disposable income
Change from
1997-2011
2011 2004 1997
0.015 0.034 0.029 0.019 Between
Market
income

-0.036 0.26 0.283 0.296 Within
-0.020 0.295 0.312 0.315 Total
0.014 0.03 0.026 0.016 Between
Disposable
income

-0.002 0.204 0.208 0.206 Within
0.012 0.234 0.234 0.222 Total
Income inequality between and within population groups
(Theil coefficient)
Source: Bank of Israel.
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Unemployment rate (15+) and real wage per employee post
(Quarterly, 2000-2013)
%
Source: Based on Central Bureau of Statistics.
NIS
7,000
7,500
8,000
8,500
9,000
9,500
-6
-4
-2
0
2
4
6
8
10
12
14
16
GDP Growth Rate (left scale)
Unemployment Rate (left scale)
Real Wage per Employee (right scale)
5
6
Source: Bank of Israel.
35%
36%
38%
39%
40%
41%
43%
44%
45%
Percentage households with two or more wage earners
(2000-2011)
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Summary
Inequality in disposable income distribution rose until 2006 before
stabilizing at a very high level.
Inequality in distribution of market income is high, but has been falling
since 2002.
Most inequality comes from within groups.
Most of the increase in inequality comes from the increase in inequality
between groups.
The labor market in Israel is very flexible (high & rising participation
rates, low unemployment, wages are responsive to the business cycle).
There is a clear trade-off between labor market flexibility and
disposable-income inequality.
The reductions in transfers and in direct taxes over the years
contributed to both.



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Are we at the right balance between labor market
flexibility and the level of inequality?


Are there policies that can contribute to reducing
inequality while maintaining labor market flexibility?

Questions:
9
Thank you
10
Source: Bank of Israel
80.0%
80.5%
81.0%
81.5%
82.0%
82.5%
83.0%
83.5%
84.0%
Proportion of income from work out of total household income
(2000-2011)
11
Source: Bank of Israel
18,000
18,500
19,000
19,500
20,000
20,500
21,000
21,500
22,000
Real income from work in households with two or more wage earners
(2000-2011)
NIS