Wage differentials in the 1990s in Israel: endowments, discrimination, and selectivity

Abstract

PurposeTo examine gender and ethnic wage structures and wage differentials an Israel and decompose the difference in wages into endowments, discrimination and selectivity components.Design/methodology/approachSelection and wage equations are estimated for each of the population groups (Eastern women, Western women, Eastern men, Western men) separately. The wage equations are corrected for selectivity using the Heckman procedure and subsequently wage differentials are decomposed into the three components mentioned above, using four alternative decompositions suggested in 2004 by Neuman and Oaxaca.FindingsGender wage differentials are significantly larger than ethnic differences. Discrimination is more common between the genders. The four alternative decompositions – that are based on different assumptions and objectives – yield different results.Research limitations/implicationsDecomposition of wage differences between groups needs to take into account information on the local relevant labor market and the wage setting process.Practical implicationsInformation on the relative shares of the endowments, discrimination and selectivity components leads to a more effective way to close wage gaps.Originality/valueEmployment of new proposed decomposition methodologies that might lead to practical implications to combat gender and ethnic wage gaps in Israel.