The increased flexibility in the local labor market, generally considered a
positive phenomenon, is linked to high inequality, incoming Bank of Israel Gov.
Karnit Flug said on Wednesday.
“There’s some trade-off between labor
market flexibility and disposable income inequality,” Flug said at a panel
discussion in Jerusalem at the Taub Center for Social Policy Studies in Israel’s
conference on inequality. The challenge, she said, was finding policies that
could decrease inequality without clogging up the labor market, such as the
“negative income tax” that encourages low-wage earners to work.
investment in education was a good option for the long run, argued Prof. David
Autor of the Massachusetts Institute of Technology, in the short term, tax
policy was the most immediate tool available to reduce inequality.
can have relatively high marginal tax rates without affecting growth,” he said.
“The Republican Party in the United States will tell you otherwise, but high
taxes do not have an effect on entrepreneurship.”
The same was true for
modest minimum wage laws, he added.
Autor argued that part of the reason
for increasing inequality was the rise of technology and international
competition. In the US, he said, technology and international competition have
eliminated many middle income jobs (e.g. assembly line, manufacturing), leaving
people to either advance to more skilled jobs, take more menial jobs (e.g.
services that cannot be exported, such as cleaning), or drop out of the
Movement from the middle to the top and bottom of
the job ladder results in higher inequality.
In a new working study, Taub
Center researcher Ayal Kimhi confirmed that a similar trend was taking place in
“Between 1997 and 2011 polarization of occupations has increased,
with labor shifting from middle-wage occupations towards low-wage and highwage
occupations,” he found.
Dan Ben-David, the center’s executive director,
sought to overturn the common view that Israel’s inequality was a result of
poverty among its Arab and ultra-Orthodox populations.
The poverty rate
is calculated by seeing how many people earn less than half the median income.
Those who claim that poverty drops without Arab and ultra-Orthodox groups fail
to recalculate the poverty line if they were excluded, he said. Looking at the
median among non-haredi Jews, he found that poverty remained stubbornly
Similar checks that excluding the country’s extreme cases confirmed
inequality as well.
“We have a major problem here as far as income
inequality and poverty are concerned,” Ben-David said.
He, too, argued
that the way Israel redistributed its income was inefficient. While the levels
of pre-tax inequality and poverty were less extreme relative to other OECD
countries, other governments proved more adept at reducing that inequality with
their tax and transfer policies.
Whereas countries at the top of the
spectrum such as Finland managed to reduce their poverty rates by 86.3 percent
through redistribution, Israel managed to only cut it by 28.2%.
among Israel’s elderly before transfers was among the lowest of all the
countries in the study (Canada’s was 0.1 percentage point lower), but the
Whereas the Czech Republic eliminated 98.9% of its poverty
among seniors, Israel reduced its own rate by less than 60%.
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