New OECD report shows more Israels in job market when compared to other members stats, but highlights an all-time high in income inequality, despite Israelis still working longer hours.
The OECD’s (Organisation for Economic Co-operation and Development)
annual employment report published Wednesday contains data showing that while unemployment rates in Israel are among the lowest in member state countries and the number of jobs is on the rise, wage gaps remain wide and only a few lucky top earners will enjoy an increase in income.
For most countries, the report only covers 2016 data. But for some countries, Israel included, the most recent data is from 2015.
The income gap, calculated using the gross wages of full-time employees, is particularly high in Israel. Employees in the top decile earned 7.22 times more than those in the ninth decile, marking an increase compared to previous years.
Moreover, the figure is far higher than any other country in the organization, with the OECD averaging at 3.42.
According to this year’s report, the wage gap in Israel rose to 6.27 in 2012, decreased to 5.7 the following year, jumped to 7.01 in 2014 and reached an all time peak of 7.22 in 2015.
The report also shows that the percentage of recipients of low wages (the rate of those earning less than two-thirds of the median wage) in Israel was 26.4% which is also significantly higher than the OECD average of 15.7%, and the figures gathered in previous years.
Increasing jobs, stagnating wages
According to the report, for the first time since the beginning of the global financial crisis in 2008, there are more employees in the OECD countries than before the crisis, but most workers have not received a rise in income, a luxury mainly reserved for higher earners.
The report indicates that unemployment rates are near or below the levels reported prior to the 2008 crisis in almost all countries. In Israel, unemployment rates are lower than the OECD average and are amongst the lowest in the OECD countries.
Stefano Scarpetta, director for Employment, Labor and Social Affairs at the OECD, notes that this positive effect is not reflected in wages.
“The OECD countries are now deep within the growth cycle, but the wage growth is significantly slower than before the crisis. At the end of 2017, the nominal wage growth in the OECD stood at only half of the pre-crisis level, when comparing similar levels of unemployment. Even if inflation is taken into account, growth in real wages is far from what it was prior to the crisis,” he explained.
Real labor income of the top percentile in the OECD witnessed a much faster growth than those of full-time employees who earn median wages. Despite the increasing number of open job positions, only high earning employees will get to enjoy a wage increase.
Taking into account the large gaps between the deciles, the statistics show that income rates in many portions of Israel’s population are significantly lower than those in most of the OECD countries.
For economists in the OECD, the non-corresponding pattern comes as a surprise. The bustling labor market’s growth and numerous job vacancies are not accompanied by any demand for income increase.
One explanation offered by the economists has to do with low productivity growth. In the years preceding the crisis, labor productivity per hour grew by an annual average of 2.3%, and in the last five years the increase in productivity stood at 1.2% on average and even less than 1% in some countries including France, Italy, Japan, Britain and the US.
The data in the report show that in certain sectors—mainly technological—there was a greater increase in productivity compared to other sectors. In other words, the increase in productivity has become centralized.
According to Scarpetta, productivity profits are evident mainly among hi-tech companies that enjoy an increase in their market value. However, he adds, job positions in these companies are mostly temporary due to constant competition between entrepreneurs and technological innovations.
“This process lowers the national income rate, which is directed at labor and human capital. Such companies invest heavily in technological capital, and therefore tend to invest less in human capital,” he explains.
The second explanation relates to the dynamic nature of the skills required in the labor market. Scarpetta notes that after the crisis, leading companies looked for high-quality personnel with high cognitive skills and social intelligence—skills that are lacking in many countries. Employees who managed to acquire these skills are the ones who benefited from wage growth.
As a result, recent developments in income level were not the same for all, with significant differences not only between countries, but domestically as well, and even within firms themselves. While the return to high-level skills has increased, evidence show that the number of low-paying jobs is on the rise.
Israelis work longer hours
When examining the average of annual work hours in each country, the statistics illustrate that that in 2017 Israel remained among the countries working the most hours, despite a small decrease of 4 hours compared to 2016. The countries that worked the most hours in 2017 are Mexico, Costa Rica and Korea. Germany, Denmark, Norway and the Netherlands worked the least number of hours.
According to Scarpetta, the decline in unemployment rates in many countries, and the rise in unemployment rate in some countries, also contributed to the growth of low wages. “Job seekers may be less selective … applying to jobs that do not match their expectations in terms of working hours, working conditions, and especially income levels,” he said.
In order to prevent the deterioration of the situation, Scarpetta calls for better coordination between the labor, education and immigration authorities in each country—coordination that does not always occur successfully. “Equitable distribution of production will prevent people from losing their jobs as a result of technological changes or trade,” he added.
Israel’s Ambassador to the OECD, Carmel Shama-Hacohen, commented on the report, highlighting the positive reflections on Israel’s market, while acknowledging some of its drawbacks.
“The report includes commendations for the Israeli labor market, which has long since forgotten the 2008 crisis and broken historic employment records month after month while most OECD countries are still struggling to return to the employment levels before the crisis,” he said. “One of the challenges Israel is facing is spreading the economic success to all sectors of the population.”