The Minimum Wage, Wage Distribution and the Gender Wage Gap in Israel 1990–2009

Yuval Mazar and Osnat Peled-Levy ()
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Osnat Peled-Levy: Bank of Israel

No 2012.01, Bank of Israel Working Papers from Bank of Israel

Abstract: The ratio of the minimum wage to the average wage increased considerably during the years 1996 and 2003. The increase was gradual following the most recent adjustment to this ratio under the Minimum Wage Law in 1997 (with the exception of a one-time increase in the minimum wage in 2003). The analysis shows that the main reason for the gradual increase in the minimum wage ratio was the slower pace of increase of the nominal wage in the economy. The wage income of women in the lowest wage quintile rose much faster than that of women in the higher quintiles, and evidence was found that the change in the minimum wage played a major role in this development. A large part of the change in wage income cannot be explained by changes in personal characteristics (e.g., education level) or by changes in the return on those characteristics. Moreover, the pay of women in the lowest quintile is almost fully correlated with the minimum wage. Based on these findings, we assess that the minimum wage contributed considerably to the increase in the wages of women earning relatively low pay, and also made a considerable contribution, although to a lesser extent, to the increase in the wages of relatively low-paid men. Despite the rapid increase in the wage of women in the lowest quintile––compared with the pay of men and the pay of women in the remainder of the wage distribution––the contribution of the minimum wage to reducing the average gender wage gap in the private sector was low in absolute terms. It should be noted that in the current study we did not focus on the effect of changes in the minimum wage on total employment, or specifically on the employment of low-wage earners. Thus we cannot rule out the claim that the positive effect of an increase in the minimum wage on the wage distribution may in certain circumstances be reduced or offset.

Pages: 35 pages
Date: 2012-02
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