New research: Firm Effect and the Israeli Gender Wage Gap

The wage gaps between men and women in Israel are among the highest in the OECD. Findings in the literature indicate that women are over-represented in industries that pay lower wages. Using panel data on wages and demographic characteristics of male and female employees in Israel in 2008–19 , the research offers a firm level view of the gender wage gaps between men and women.

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• The wage gap between men and women was 30 percent in 2019. The research offers a firm level view of the gender wage gap in Israel, and estimates, using wage data for male and female employees in 2008–19, the wage premium attributed to the firm in which they are employed. It was found that the gaps in that premium explain approximately 30 percent of the wage gaps between men and women in Israel. 

• The research indicates that the women’s tendency to concentrate in firms that pay a low wage premium explains a marked share of the differences in the wage premiums (the “sorting channel”), while a very small share of the wage gap is attributed to providing different wage premiums to male and female employees of the same firm. 

• With the birth of a first child, the premium gaps between women and men widen through the sorting channel and remain high in the years that follow as well. This finding is in line with evidence in the literature of a “motherhood penalty”. 
• Therefore, the research’s findings support the premise that a policy focused on ensuring equal employment opportunities, with an emphasis on parents’ work characteristics, will be more effective than regulation on the wage gap between male and female employees within the same firm.

The wage gaps between men and women in Israel are among the highest in the OECD. Findings in the literature indicate that women are over-represented in industries that pay lower wages. Using panel data on wages and demographic characteristics of male and female employees in Israel in 2008–19[1], the research offers a firm level view of the gender wage gaps between men and women. By following employee job mobility between firms, this research identifies the wage premium attributed to the firm—a unique wage supplement that the firm shares with its employees. It was found that the gaps in this premium explain approximately 30 percent of the wage gap between men and women in Israel. The gap may stem from two channels: the between-firms gap, which will be reflected in the gender wage gap as long as women “sort” into firms characterized by a low wage premium and a within-firm gap that will be reflected in the gender wage gap as long as women receive a lower wage premium than men working with them in the same firm.

The research’s findings indicate that the main contribution to the gender wage gap in the premium attributed to the firm is from gaps between firms and from women’s tendency to concentrate in workplace that pay a lower wage premium. The part of the gap between male and female employees within the same firm is very small, particularly in the bottom of the wage distribution. Therefore, the research’s findings support the premise that a policy focused on ensuring equal employment opportunities will be more effective than regulation on the wage gap between male and female employees within the same firm.

With the birth of a first child, the premium gaps between men and women widen through the sorting channel (Figure 1, the blue section) and remain high in following years as well. An analysis of mobility patterns between firms among women and men indicates that compared to men, women switch to a firm that grants a higher premium, meaning they improve their standing in the labor market, only at a later stage in which the youngest child is older and more years have elapsed since the birth of the first child. This finding is in line with evidence in the literature of a “motherhood penalty”.

Figure 1: Firm Premium Gap Decomposition: Between and Within Firm Gaps

By years following first child birth

SOURCE: Based on Central Bureau of Statistics.

The gaps between firms refer to women’s tendency to concentrate in workplaces that grant a low wage premium. Within-firm gaps refer to providing a low wage premium to female employees compared to male employees in the same firm.

 

 

 

[1] The research was carried out in the research area of the Central Bureau of Statistics. Based on files of individual records that were prepared in order to conduct the research by the Central Bureau of Statistics, and from which identifying details were deleted.