Nationality, Ethnicity, and Religiosity-Based Inequality in Labor and Capital Incomes, Israel 1987-2022

In this paper, we make use of a new framework to study income distribution, termed "Distributional Workplace Accounts" (DIWA), to study income inequality by nationality, ethnicity, and religiosity in Israel over 35 years (1987-2021). DIWA is constructed based on linked employer-employee administrative data and workplace accounts, which together enable the generation of consistent statistics of incomes, capturing close to 100% of the population and 100% of the amount of national income. We use DIWA's new framework to provide the first estimation of the cost of employer-provided fringe benefits and capital income (business income, income from property, and firms' profits attributed to the managerial class among employees) at the individual level. We do so for the entire Israeli population over 35 years. We then use the imputed data on benefits costs and capital income at the individual level to estimate nationality, ethnicity, and religiosity-based inequality in earnings, benefits costs, capital income, and total income (earnings, benefits, and capital income) in the Israeli context.

Specifically, we ask three questions. First, how the well-documented inequality in earnings based on nationality (Jews/Arabs), ethnicity (defined by immigration status, country of origin, and generation), and religiosity (Haredim/non-Hardim) change after we account for income from all available sources (earnings, benefits, and capital). Second, we ask if the long-term trends in total income inequality differ from the well-known trends in earnings inequality. Finally, we utilize the employer-employee data structure to determine whether the proportion of minorities in a company's value added is lower, equal, or higher than their representation in employment. This is important because if some workers earn more due to their higher efforts, skills, and productivity, it has different implications compared to if their higher earnings come from having unfair advantages that allow them to extract much higher salaries than their actual productivity.