Inequality in wages between industries has reached a peak, the labor market is polarized, and inflation is eroding wages – especially for those with low wages.

Ido Len and Yoni Ben Bassat
Mar 22, 2023

Arlozorov Forum labor market spotlight

The main findings:

Summary of 2022 in the labor market – salary erosion: 2022 was the year of the recovery of the Israeli economy from the Corona crisis. However, for most workers, it was mainly characterized by wage erosion and rising inequality, and it may herald a new era of polarization in the labor market.

Inequality in wages between the sectors of the economy – the highest since 2012: From 2014 until the COVID-19 crisis, wage inequality between workers in the various sectors of the economy decreased slightly. The latest labor market data suggest that this reduction has been completely erased, and inequality in 2022 is the highest since 2012.

The primary source of the increase in inequality – The decrease in wages in industries characterized by low wages: the real wages of workers in sectors characterized by low wages eroded by 10% compared to the long-term trend, and this corresponded to the erosion of only 3% in industries characterized by high wages.

The polarization in the labor market reduces the middle class: Employment data indicates an increase in the number of jobs at the extremes of the salary – where the pay is relatively high or low. Alongside this increase, a decrease in the number of jobs in industries with wages in the mid-range is observed.

For the first time, a decrease in real wages is evident even in industries characterized by high wages: Arlozorov Forum indicates for the first time that even industries characterized by high wages (upper quarter) have experienced a decrease in real wages in recent months.