Low wage earners gain little from economic growth

The Bank of Israel study examined the changes in the number of hours worked by each employee within a period of about 18 months.

October 24, 2007 08:11
2 minute read.


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Low-income families do not benefit from a change in economic growth in contrast to the significant impact it has on the income of most other employees, a study by the Bank of Israel has found. "In the short-term, growth has only a small effect on the income of low-income families whose main breadwinner is male. In families where a woman is the main wage earner, the effect of growth is noted mainly in the rise in the number of hours she works," stated Dr Adi Brender and Lior Galo in a study by the Bank of Israel research department examining the effects of changes in gross domestic product on work hours and income changes. "In contrast, in higher-income families, growth is reflected mainly in a rise in the hourly wage." The study found that men increased the number of hours they worked in periods of growth, except for those from families in the lowest quintile of the distribution of wage income and those in occupations requiring higher education. "The study points to an already recognized imbalance of income distribution in times of growth," Roby Nathanson, general director of the Center for Political Economics told The Jerusalem Post. "It just shows that the Israeli government needs to make a decision to adopt an active labor market policy to encourage equal income distribution." The Bank of Israel study, based on a sample of about 80,000 employees included in the manpower surveys from 1994 to 2005, examined the changes in the number of hours worked by each employee within a period of about a year-and-a-half. Similar to previous studies conducted in Israel, the study also showed that the effect of growth on the number of hours worked was twice as strong as its effect on the number of people entering or leaving the labor force. Examining the effects of differences in GDP growth on working women, it was found that in periods of growth women at the margins of the labor market and those in low-paid jobs increase the number of hours they work, and in a recession they work fewer hours. "The effect of growth on these groups is twice as strong as its effect on the number of hours worked by men," the study said. This was true for women aged 22-25 and 51-60, those in low-paid jobs and those from families whose wage income is low, which make a third of all employees, while women in other groups did not change the number of hours they work, but enjoyed the benefit of a rise in their hourly wage during the growth period. At the same time, the study revealed that changes in wages hardly affected the number of hours worked, especially among those in full-time employment. "One cannot conclude from this that changes in the marginal wage (e.g., changes in the tax brackets) will also have only a small effect," said the authors of the study.

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