Ethnic and gender earning gaps in a liberalized economy: The case of Israel

During the 1990s and the 2000s Israel, a country ethnically divided into a dominant Jewish majority and a disadvantaged mostly Muslim Palestinian minority, underwent a transition from a heavily regulated to a neo-liberal economy. This paper makes use of the Israeli case to shed light on the effect of liberalization on earning gaps in the public and private sectors across dominant and disadvantaged population groups. The data, drawn from the 1995 and 2008 censuses—years that encompass the transition period, enable a dynamic investigation of the liberalization process by comparing labor market outcomes for Israeli Jews and Muslims of both genders working in the public or private sector. Liberalization reduced the protective role of the public sector, especially hurting women of both ethnic groups. In the private sector this process improved the position of the strongest group of Jewish men and of the weakest group of Muslim women. Discrimination against Jewish women and Muslim men in the private sector increased.