[Type text] On Gender Discrimination in Wages and the Feminization of Poverty The Case of Israel 1997-2010 Miri Endeweld1 and Daniel Gottlieb2* Abstract In this paper we analyze the socio-economic situation of women in Israel. More specifically we study the development of the dimensions of poverty of households headed by women over the observation period. We discuss poverty calculated from economic cash income and from net cash income. The difference between them reflects the effort of poverty reduction by government intervention through payment of social benefits and taxation. These developments are shown for various population groups, including the old-aged and single mothers. The poverty dimensions include poverty incidence, the relative income gap and poverty severity (as measured by the FGT index). In the second part we estimate the gender effect in a microeconomic model of determination of hourly wages, which may be interpreted as an indication for gender discrimination in the labor market. This is done by estimation of a wage equation for the beginning and the end of the observation period – 1999 and 2010. We also added an estimate for 2011 in order to check for the robustness of the 2010 results. The hourly wages are explained by demographic and socio-economic variables, like the economic branch and occupation of the wage earner’s, and more general data such as the geographic area and ethnic origin, which are also important determinants in Israel’s highly heterogeneous society. Such estimations typically encounter the problem of the self-selection bias. This is particularly true in economies which have a high percentage of people in working age who do not participate in employment. We thus estimate the two-stage model including a “Heckman-correction” and compare it with the OLS estimates. Our analysis indicates that the poverty indices for women as heads of households are significantly higher than for households headed by men. However the gender gap in poverty rates is found to decline over time. In the simple wage equation we find gender discrimination to be significant and more or less stable over the decade . After correcting for self-selection we find that the gender bias was lower in all three years, but remained stable between 1999 and 2010. However it increased in 2011 compared to the other two years we examined.. Jerusalem, April 2013 Keywords: Poverty; Gender discrimination, Income Distribution. JEL Classification codes: I32, J16, J31, J7 *Corresponding author: [email protected]; Tel.: +972-505298555; 1 2 National Insurance Institute, Jerusalem, Israel National Insurance Institute, Jerusalem, Israel and Hebrew University of Jerusalem [Type text] Introduction There are many disadvantaged groups in any society. However it seems that women constitute the biggest disadvantaged group, since they account typically for about half the society. A particularly outrageous expression of gender discrimination is certainly the phenomenon of ‘missing women’, as portrayed by A.K. Sen.3 In most Western countries, as opposed to the situation for example in Africa and India, the number of women exceeds that of men by about 5-6%. In Israel the situation is similar to that of Western countries with the female population exceeding the male population by some 2%. At birth the ratio is 0.96 but the ratio increases with age. At the age of 31 the number of women begins to exceed the number of men by 1% and at the age of 69 the number of women exceeds that of men by 70% (see appendix figure 1). The feminization of poverty describes a trend of worsening poverty dimensions over time for households headed by women compared to those of male headed households.4 The purpose of this paper is to estimate and analyze the feminization of poverty and more generally the gender gap in wages for Israel over the period 1997 to 2011. The data are based on the household income surveys which have been compiled by a consistent methodology since 1997 by the Central Bureau of Statistics. One difficulty of evaluating women’s socio-economic situation is that a considerable part of their economic activity is not channeled through the market and is therefore underestimated in a longstanding tradition of national accounting practice. The neglect of home production in official statistics has lately been reconsidered in the report by Stiglitz, Sen and Fitoussi (2009). The report, especially in its fifth recommendation, strongly advocates to measure home production for a better account of income and consumption. This will have a direct bearing on the accounting and analysis of the society’s well-being, income distribution and efficiency of resource allocation. Notwithstanding, the Nordic social model stresses the importance of 3 See Amartya K. Sen, 1990. The sociologist Diana Pearce was probably the first to use the term of feminization of poverty in the beginning of the 1970s, describing a worsening trend of the gender gap in poverty incidence. See Pearce (2011). 4 [Type text] channeling economic activity as much as possible through the market mechanism, thus ensuring the full benefit of economies of scale (see Andersen et al., 2007). 1. The socio-economic situation of women and men 5 The data presented here show that poverty incidence of economic income among women is significantly higher than that of men. Economic income refers to the market income collected by households, i.e. income earned from work, pensions or capital. This is the income before government intervention and transfers among households.6 The gender distinction in the present analysis is done by identifying households by the gender of the head of the household.7 Figure 1: Poverty incidence by gender for economic income: 1997 to 2010** 36% 34% 34.6% 32.8% 32.6% 32% 30.9% 26% 31.3% 30.8% 30% 27.7% 28% 31.8% 32.1% 31.5% 27.6% 28.2% 26.8% 28.0% 26.3% 25.6% 24% 26.7% Women Men 22% 20% 1997 1998 1999 2002 2003 2004 2005 2006 2007 2008 2009 2010 **The following comment applies to all figures: The data are from the yearly income surveys of the Israeli Central Bureau of Statistics. Since the data for the years 2000 and 2001 could not be collected on the Arab population of East Jerusalem, these years are not included in the analysis. Figure 1 shows that women’s incidence of economic poverty exceeds that of men by some 15 to 20%. Figure 2 indicates that poverty incidence of net income of women, men exceeds that of men by 5-10%. During the observation period all categories experienced a rise in poverty incidence with a particularly sharp increase in child poverty. This is not surprising since the correlation between poverty and family size is a well established fact. Women’s poverty incidence is about 1 to 1.5 percentage points higher than for men. While child poverty increased already in 1998 women’s poverty 5 Throughout the paper we refer to women and men aged 18+. The poverty of economic income is calculated here by use of the official net equivalised household income. 7 This is a common choice, although an alternative would be to identify individuals by gender. 6 [Type text] accelerated between 2003 and 2005 with the implementation of the harsh social policy, after which it stabilized at around 19 to 20%. Poverty incidence of net income is the combined outcome of poverty of economic income and of government intervention through taxation and benefits. Economic poverty reached 35% in the beginning of the observation period and after a certain decline it remained relatively high at about 30%. Male economic poverty was quite stable at around 26 to 27%. Figure 2: Poverty incidence by net income, 7991-0272 40% 35.3% 35% 30% Children Women 25% 20% 15% Men 19.9% 18.2% 10% 1997 1998 1999 2002 2003 2004 2005 2006 2007 2008 2009 2010 Government intervention in the form of benefits and taxation reduced the gender gap (figure 3). However in recent years the intervention became less effective and the gender gap in net incomes increased, despite the fact that the poverty gap due to market forces has been falling. This result was brought about by a severe cut in social benefits, particularly of income support, child benefits and unemployment benefits for the young, as well as a freeze of inflation adjustments of all benefits. By 2006 this anti-social policy was further intensified by a regressive tax reform. Since the single mother families represent a significant group among families receiving income support, these cuts hurt families headed by women more than those headed by men. Unsurprisingly therefore the main increase in poverty incidence of both men and women occurred in the early 2000s. The rapid economic growth thereafter dampened female poverty incidence. However it did not manage to reverse the trend of increased [Type text] poverty incidence. It is not surprising that poverty among women has become more sensitive to economic growth, a fact due mainly to the continued increase in women’s employment ratio. There remains the question why this development has not succeeded in further reducing the gender poverty gap. The answer seems to be related to the fact that many of the women joining employment did so at low wages, relative to their qualifications. A further reason for the slow adjustment of the gender related poverty gap could be due to the discrimination of women in wages, an issue taken up in section 2.1. Our first conclusion is therefore that the reduction of the phenomenon of feminization of poverty was due to favorable market forces. The reduction of the gender gap in poverty requires active government policy. However, as can be seen from the data the reduction in the gender gap has been declining over time. The intensity of the policy correction has been declining from some 6% in the late 90s to about half of that in 2010 (figure 4). Figure 3: Reduction of poverty incidence through government intervention*, 1997-2010 20% Women Men 18% 17.8% 16.8% 16% 14.6% 14% 13.9% 13.9% 12% 12.0% 12.5% 12.5% 12.5% 11.8% 10.3% 10% 11.6% 11.9% 11.7% 11.4% 10.8% 10.3% 9.6% 9.5% 8.6% 8.7% 8.7% 9.2% 8.5% 8% 1997 1998 1999 2002 2003 2004 *The figures also include transfers between households. 2005 2006 2007 2008 2009 2010 [Type text] Figure 4: The impact of government policy on the reduction of the gender related poverty gap, 1997 -2010 6.0% 5.5% The gender gap in the impact of government policy on poverty incidence 5.0% 4.5% 4.0% Log. (The gender gap in the impact of government policy on poverty incidence) 3.5% 3.0% 2.5% 2010 2009 2008 2007 2006 2005 2004 2003 2002 1999 1998 1997 2.0% Income from work is the main source of income of both women and men. However, table 1 shows that there is still a considerable difference in the composition of income sources between households headed by men compared to those headed by women: in 2010 income from work was 10 percentage points higher for men than for women, while the share of social benefits was twice as high for women than for men. Table 1: Income sources by gender Households headed by: Source of income Men % Women All sources 15,878 100.0% 11,804 Work 13,028 82.0% 8,151 Benefits 1,499 9.4% 2,189 Capital 558 3.5% 426 Pensions 793 5.0% 1037 % 100.0% 69.1% 18.5% 3.6% 8.8% 2. Gender and the labor market Gender discrimination in the labor market has been studied all over the world and over various periods.8 The UN’s human development report for example includes the labor force participation rates by gender in its measure of gender inequality. However, this is an imperfect measure since it does not reflect gender differences in wages. 8 A comprehensive discussion of gender inequality in the labor market can be found in the UN’s Human Development Report. [Type text] These differences are quite persistent over time.9 Figure 5 presents the development of employment participation rates over time by gender. The gender difference in Israeli participation rates has been quite stable over time, though dipping in 2009, when the world economic crisis hit Israel’s economy with some delay. The male employment rate dipped by 6.8% whereas women’s employment rate dropped only by 3.7%. In 2010 hours worked and the reported wages still show considerable differences. Among wage earners average monthly hours worked as reported in the income survey were about 27% higher for men than for women. The hourly wage, which takes account of the difference between the sexes in hours worked, was still about 17% higher for men. Figure 5: Employment rates* by gender – 2001 to 2009 72.0 20.0 70.0 18.0 68.0 16.0 66.0 14.0 64.0 12.0 62.0 10.0 Men - all ages 60.0 Women - all ages 8.0 58.0 Gender difference in employment rates (RHS axis) 6.0 56.0 4.0 54.0 2.0 52.0 0.0 2001 2002 2003 2004 2005 2006 2007 *Employment rates are calculated as the share of the working age population. Source: Administrative data of the tax authorities 9 See The Economist, 2009. 2008 2009 [Type text] Figure 6: Average monthly wages for men and women by age groups, 1999 and 2010 14,000 Monthly wages 12,000 10,000 8,000 6,000 Men, 2010 Men, 1999 (2010 prices) Women, 2010 4,000 2,000 Women, 1999 (2010 prices) 0 15-24 25-29 30-34 35-39 40-44 45-49 50-54 50-59 60-64 65-69 70+ Age groups Further evidence about women’s discrimination can be found in Endeweld (2012), according to which wage mobility from 1990 to 2005 was significantly lower for women than for men. This result indicates that the gender wage gap was not diminished over that period.10 The wage curve by gender over the various age groups presented in figure 6 indicates the change in the monthly wage over the life cycle for the years 1999 and 2010. Figure 7 shows that the gender wage differential rises with age and culminates around the age of 50 to 69. Since expertise and professional experience are expected to be closely related to the wage level this implies that the more experienced the worker the higher the absolute gender wage differential. 10 This result is based on the administrative panel data set of the tax authorities, a fact that reinforces the evidence on the gender gap since it is based on different sources. [Type text] Figure 7: Wage differential – male less female wages, by age groups (2010 prices) 8,000 7,000 6,000 5,000 4,000 1999 3,000 2010 2,000 1,000 - Wage discrimination of women may occur through the feminization of specific economic branches. According to this argument the feminization would reduce the general average wage, the higher the share of women employment in the industry. As can be seen in figure 8, panels a and b, while there was a slight negative correlation between the general average wage and the share of female employment in 1999 (as reflected by the trend line), this effect turned into a positive slope by 2010. Of course this does not yet exclude this effect to have taken place, since there may be additional factors at work such as different levels of education etc. but we may conclude that the feminization effect probably has not played a major role in wage determination. Figure 8: Average hourly wage and female participation in economic branch Panel b 80 80 70 70 60 60 hourly wage, 1999 hourly wage, 2010 Panel a 50 50 40 40 30 30 20 20 10 10 0 20 40 60 80 Share of women in economic branches 100 0 20 40 60 80 Share of women in economic branches 100 [Type text] 2.1 An econometric model of wage discrimination In order to estimate the possibility of wage discrimination, as many variables that could cause wage-differentials need to be accounted for. In the following we shall argue that there is wage discrimination only if a difference in hourly wages remains after the maximum of objective determinants that can create wage differentials have been taken into account. Of course the focus on hourly wages implies that if a person works part time this reflects a choice and not a constraint in the availability of full time jobs. The same holds for the effect of economic branch. Part of the discrimination may manifest itself in a limited possibility to find a job in an economic branch with high average wages. With all these reservations in mind we use a simple linear model of wage determination: ∑ where is the log of individual i's hourly wage and the variables represent demographic variables and personal characteristics such as the wage earner’s age, family status, number of children, ethnic affiliation, education, economic branch of activity, occupation, geographic area etc. and ε the error term. Such an OLS regression is presented in table 3. The signs of the coefficients are in the expected direction: they suggest that the wage increases with age though at a declining pace, the number of children add positively to the wage, maybe due to a higher reservation wage. So does the number of school years affect hourly wages. Working in one of the traditional economic branches reduces the wage when compared to the branch of social and private services which was excluded from the regression. The choice of occupation affects wages significantly. Being Arab or Haredi reduces the wage after having taken into account all other determinants, suggesting, similarly to the possible gender discrimination also a bias of belonging to one of the two groups. There is a striking similarity in the size of the three biases. While the discount on Haredi labor increases over time the opposite [Type text] happens to wages of new immigrants. For Arabs the average reduction is less stable over time. A slight though significant advantage is found in wages paid in the center whereas the often stated bias towards Europeans or Americans and the parallel bias against people of Sephardic descent seems to have become irrelevant towards the end of the observation period. The gender bias is estimated at some 18-19% for each of the three years, revealing quite a stable coefficient. The R2 of the regression is around 0.4. Most variables have a high statistical significance level. A well-known problem with wage equations is the possible bias that arises from the fact that a significant share of the population is not employed. This may lead to a bias since also some of the people out of employment share similar characteristics as the wage earners. This may thus lead to an exaggerated estimate of some of the characteristics affecting the wage equation. We therefore apply the ‘Heckman correction’ by adding a first stage of regressing an employment equation such as to minimize the possibility of such a bias to appear in the coefficients we are interested in.11 The coefficients we report in table 4 are adjusted by the ‘Heckman correction’. These estimates take into account the possibility of self-selection. Indeed this correction seems to be of particular importance when we analyze the gender bias. This bias gets corrected downwards, leaving the possible discount due to discrimination at the level of about 13.5% both for 1999 and for 2010. In 2011 the bias increases to some 17%. 11 See Heckman (1979). [Type text] Table 3: OLS regressions for log hourly wages in 1999, 2010 and 2011 1999 Dependent variable - log of hourly wage 2010 2011 Women Regression coefficient -0.191510 0.000 Regression coefficient -0.181000 0.000 Regression p value coefficient -0.193990 0.000 Age 0.040920 0.000 0.039000 0.000 0.049030 0.000 Age squared -0.000380 0.000 0.000000 0.000 -0.000460 0.000 Children 0.021400 0.000 0.027000 0.000 0.025180 0.000 Number of school years 0.037350 0.000 0.040000 0.000 0.039640 0.000 p value p value Economic branch; Excluded - Social and personal services Industry, construction, agriculture (traditional sectors) -0.040020 0.037 0.034000 0.018 0.017340 0.227 Electricity and water 0.309080 0.000 0.376000 0.000 0.342100 0.000 Trade and food -0.130300 0.000 -0.015000 0.306 -0.032510 0.025 Transportation and Communication 0.039300 0.112 0.046000 0.018 0.038590 0.044 Banking and Finance 0.025180 0.211 0.077000 0.000 0.087190 0.000 Public sector 0.062620 0.006 0.159000 0.000 0.134400 0.000 Occupation; Excluded - low skilled workers -0.081730 0.000 -0.049000 0.000 -0.035880 0.007 Academic 0.518770 0.000 0.479000 0.000 0.464540 0.000 Technical, Free 0.391280 0.000 0.340000 0.000 0.334090 0.000 Management 0.538530 0.000 0.481000 0.000 0.514600 0.000 Clerk 0.183130 0.000 0.133000 0.000 0.110500 0.000 Sales personnel -0.020860 0.226 -0.026000 0.095 -0.043390 0.005 Professional worker 0.053670 0.002 -0.005000 0.758 -0.011210 0.512 Europe, America 0.013130 0.359 -0.033000 0.015 0.019610 0.228 Asia, Africa -0.046880 0.002 -0.024000 0.194 0.014720 0.416 Arab -0.209790 0.000 -0.255000 0.000 -0.187830 0.000 Haredi -0.198550 0.000 -0.236000 0.000 -0.267720 0.000 Jerusalem -0.012420 0.512 -0.033000 0.048 -0.001850 0.912 Haifa and North 0.004540 0.746 -0.013000 0.308 -0.000730 0.953 Tel Aviv and Center 0.063130 0.000 0.060000 0.000 0.074950 0.000 New Immigrant -0.343180 0.000 -0.212000 0.000 -0.191650 0.000 Constant 1.936780 0.000 2.096000 0.000 1.954080 0.000 Education and Health Origin or ethnic group (Excluded - Jewish, born in Israel Area of dwelling (Excluded - South) [Type text] Table 4: Two stage regression for log hourly wages in 1999, 2010 and 2011 with a ‘Heckman-correction’ for possible self-selection bias 1999 Dependent variable - log of hourly wage Women 2010 Regression p value coefficient -0.13450 0.000 Age 2011 Regression p value coefficient -0.13627 0.000 Regression p value coefficient -0.16995 0.000 0.04212 0.000 0.03948 0.000 0.04917 0.000 -0.00036 0.000 -0.00032 0.000 -0.00044 0.000 Children 0.02685 0.000 0.02850 0.000 0.03248 0.000 Number of school years 0.03736 Age squared 0.000 0.04071 0.000 0.03990 0.000 Economic branch; Excluded - Social and personal services Industry, construction, agriculture -0.04151 0.030 0.03592 0.013 0.01606 0.263 Electricity and water Trade and food 0.30815 0.000 0.38207 0.000 0.34608 0.000 -0.13357 0.000 -0.01738 0.236 -0.03514 0.015 Transportation and Communication 0.03950 0.108 0.04629 0.016 0.03731 0.050 Banking and Finance 0.02829 0.159 0.08244 0.000 0.09153 0.000 Public sector 0.06208 0.006 0.15695 0.000 0.13414 0.000 -0.08527 0.000 -0.04573 0.001 -0.03412 0.009 Education and Health Occupation; Excluded - low skilled workers Academic 0.40897 0.000 0.34271 0.000 0.34850 0.000 Technical, Free 0.39293 0.000 0.33523 0.000 0.33375 0.000 Management 0.53690 0.000 0.47680 0.000 0.51135 0.000 Clerk 0.18163 0.000 0.12619 0.000 0.10572 0.000 -0.02001 0.241 -0.02786 0.073 -0.04542 0.003 0.04774 0.005 -0.01589 0.349 -0.01695 0.317 0.01118 0.435 -0.03272 0.014 0.01919 0.238 Asia, Africa -0.04585 0.002 -0.02668 0.147 0.01443 0.421 Arab -0.12255 0.000 -0.12835 0.000 -0.09137 0.000 Haredi -0.19574 0.000 -0.23207 0.000 -0.26603 0.000 -0.00842 0.656 -0.03200 0.055 0.00040 0.981 0.00542 0.698 -0.01297 0.291 -0.00178 0.885 Sales personnel Professional worker Origin or ethnic group (Excluded - Jewish, born in Israel Europe, America Area of dwelling (Excluded - South) Jerusalem Haifa and North Tel Aviv and Center 0.06490 0.000 0.06111 0.000 0.07655 0.000 -0.34607 0.000 -0.21969 0.000 -0.19507 0.000 1.94557 0.000 2.15349 0.000 2.00735 0.000 Age -0.02695 0.000 -0.01928 0.000 -0.02074 0.000 Women -0.54968 0.000 -0.34314 0.000 -0.19093 0.000 Jewish 0.72411 0.000 0.84692 0.000 0.78594 0.000 Married 0.32287 0.000 0.24064 0.000 0.27291 0.000 Children -0.09236 0.000 -0.04327 0.000 -0.09359 0.000 Academic 1.60062 0.000 1.53120 0.000 1.57627 0.000 Constant 1.00465 0.000 0.60923 0.000 0.66016 0.000 New Immigrant Constant Selection equation, Variable - Worker [Type text] 3. Summary and conclusions In this paper we analyze the gender gap from the late 1990s to 2010 both in poverty dimensions and in the labor market. The poverty of households headed by women is found to exceed that of households with men at their head. We discuss poverty calculated from economic cash income and from net cash income. The difference between them reflects the effort of poverty reduction by government intervention through payment of social benefits and taxation.12 The gender effect in hourly wages may be interpreted as an indication for a gender bias in the labor market. Our OLS estimates of the wage equation show that the gender bias seems to have been quite high and stable over some 13 years– nearly one fifth of male hourly wages. Such estimations typically encounter the problem of the self-selection bias. This is particularly true in economies which have a high percentage of people in working age who do not participate in employment. We thus estimate the two stage model including a “Heckman-correction” and compare it with the OLS estimates. When taking into account the possibility of self-selection the gender bias is somewhat reduced – to about 13 percent. The gender bias is lower in all three years but increases in 2011 compared to the years 1999 and 2010.13The hourly wages are explained by demographic variables, personal characteristics, the economic branch of the wage earner’s activity and her occupation, and more general data such as the geographic area and ethnic origin, which are also important determinants in Israel’s highly heterogeneous society. Our analysis indicates that the poverty indices for women as heads of households are significantly higher than for households headed by men. The gender gap in poverty rates is found to decline over time. 12 In the next version we shall estimate the gender bias by a similar methodology to that applied in our wage equation, except for the use of a logistic function which is more suitable for estimating the risk of poverty. 13 In the next version we shall provide the robustness test for all the years in the sample. This will also allow us to see if there is a tendency of the feminization of poverty or not. Judging from the heuristic approach in the introduction it seems that there is no trend of an increasing poverty incidence or severity of households headed by women. [Type text] References Andersen Torben M., Bengt Holmström, Seppo Honkapohja, Sixten Korkman, Hans Tson Söderström, Juhana Vartiainen, 2007, “The Nordic Model - Embracing globalization and sharing risks”, The Research Institute of the Finnish Economy (ETLA), Publisher: Taloustieto Oy, Yliopistopaino, Helsinki, Endeweld Miri, 2012, Wage mobility and Inequality in Israel, 1990-2005, October, National Insurance Institute, 1-66, (Hebrew with English abstract). Folbre Nancy, 1991, “The Unproductive Housewife: Her Evolution in Nineteenth Century Economic Thought”, Signs 16 (3): 563-484. Heckman, James, 1979, "Sample selection bias as a specification error", Econometrica 47 (1): 153–61. Pearce Diana, 2011, “The changing faces of the feminization of poverty”, Lecture in a Seminar on the Feminization of Poverty, Valparaiso, Chile, March, 1-8. Sen Amartya, 1990, “More than 100 million women are missing, December, Volume 37, Number 20, http://ucatlas.ucsc.edu/gender/Sen100M.html Stiglitz Joseph, 2012, “The Price of Inequality – How Today’s Divided Society Endangers Our Future”, W. Norton and Company. Stiglitz Joseph, Amartya Sen and Jean Paul Fitoussi, 2009, “Report by the Commission on the Measurement of Economic Performance and Social Progress”, http://www.stiglitz-sen-fitoussi.fr/en/index.htm. The Economist, 2009, “Women at work – We did it”, December. The Economist, 2013, “The Next Supermodel”, February. United Nations, Human Development Reports, various years. Chapter on gender inequality. [Type text] Appendix Appendix 1: (Ratio of Women/Men minus 1) by age 90.0 80.0 70.0 60.0 50.0 40.0 30.0 20.0 10.0 0.0 0 4 8 12 16 20 24 28 32 36 40 44 48 52 56 60 64 68 72 76 80 84 88 92 -10.0 Age Source: Central Bureau of Statistics, Israel [Type text]
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