Trends in Wage Gaps between Arabs and Jews, 1997–2009

This Hebrew study, conducted under the auspices of IDI’s Arab-Jewish Relations project, examined the wage gaps between Jews and Arabs in the Israeli labor market in 1997–2009. It reveals that wage discrimination against Arab Israelis occurs regardless of the skill-level of the workers and assumes that this discrimination is an “ethnic penalty” that Arab Israelis “pay” when they actively participate in the labor market.

Abstract

This article examines the wage gap between Jews and Arabs in the Israeli labor market during the years 1997–2009. It rests on the assumption that wage discrimination against the Arab sector is an "ethnic penalty" that this group "pays" when it actively participates in the labor market. As a result of this penalty, Israel's Arab citizens remain ensconced in a low socioeconomic status and at the bottom of Israel's economic pyramid. We conclude that blatant wage discrimination against the Arab population existed throughout the period studied, regardless of the skill-level of the workers. The size of the gap between the sectors varied over time: It increased between 1997 and 1999, concurrent with the absorption of the wave of aliya from the former Soviet Union; it shrank between 2000 and 2004, thanks to a decline in the employment of non-Israelis after the outbreak of the Second Intifada; it then grew again until 2008, as an increasing number of foreigners entered the Israeli labor market. The results point to the fact that the ethnic penalty is evident even when examined in isolation from the effect of human capital, and the return on human capital variables within the Arab population is substantially lower than the return in the Jewish sector. Especially notable is the negative return of a full-time position on the wages of an Arab worker, which points to a lack of occupational stability and security in this sector.

Main Findings

Following is the picture that emerged from the analysis of the results of income surveys of the Central Bureau of Statistics from 1997–2009, as reported in the study:

• The gap between the average hourly wage of Jewish and Arab workers is between 40% and 60%, in favor of the Jews. Among Arabs, the average hourly wage is approximately NIS 29, as opposed to NIS 44 among Jews. This gap includes, among other things, the ethnic penalty paid by Israel's Arab citizens, which is a symbol of the wage discrimination against this group.
• Examining the data on wage gaps over the years showed that in 1997–1999, there was an increase in the gap between wages of Arabs and Jews. This was the result of the large wave of aliya from the former Soviet Union in the 1990s, which pushed Arab workers out of the Israeli labor market.
• Between 2000 and 2004, the situation of Arab Israelis improved, due to the sharp decline in the number of Palestinians and foreigners employed in Israel and the increased demand for Israeli Arab workers after the outbreak of the Second Intifada.
• After the end of the Second Intifada in 2004, the wage gap between the Jewish and Arab populations increased and reached a peak in 2008, once again because of the increased number of non-Israeli workers (Palestinian and foreign laborers) in the labor market.
• As the level of education of the two populations increases, the wage gap between the two groups decreases.
• An examination of the wage gap at different income levels reveals that the wage gap between Jews and Arabs increases as the level of income increases.

Read the full article (Hebrew)