The Workplace Dynamics of Wage Inequality: Exploring the Impact of Organizational Demography

This article examines the gender-ethnic wage gaps in diverse Israeli workplaces, focusing on the impact of workplace demographic composition. Using linked employer-employee longitudinal data covering the entire Israeli private sector from 1996 to 2015, I demonstrate the importance of distinguishing between the representation of marginalized groups in the total workforce and their presence in high-status positions. Increased representation in high-status roles strongly benefits same-group members in lower-status positions, consistent with theories of tokenism and relational inequality. In contrast, total workforce representation shows a nonlinear pattern: slight gains at low levels, followed by wage declines as the shares of Arab men and Jewish women rise—supporting threat and competition theories. Essentially, the study introduces a ‘relational measure’ of workforce composition, demonstrating that the compositions of the total workforce and high-status positions intersect, influencing income distribution at work. This measure illustrates how wage effects differ across demographic regimes, with nuanced group-specific pay outcomes that traditional composition measures cannot capture. Cross-group dynamics and integrated workplaces employing Arab women are analyzed in the final part of the paper. The findings have important practical implications, as they highlight the role of workplaces in generating and mitigating wage inequality and call for better-targeted diversity policies.